Do we all really have to be lawyers?

I recently received an interesting question from one of my 2L colleagues: "Do I really want or need to practice law?" Naturally, the first thing that came out of my mouth, "Why on earth would you have spent so much time going through the essential motions only to end up doing something else?" But, upon further reflection, I realize that I may have been slightly narrow-minded. Maybe law students, particularly those who come into law school just because it is the "next best thing to do," need a greater amount of guidance from career counseling offices to navigate the ever-changing and dramatically complex job landscape. Let me explain.

First, there are other "career options" that are quite obvious--eg, public service, non-legal advocacy work, etc. It is obviously not uncommon for politicians to be lawyers, for example (our president is one). But there are many non-obvious career paths for someone who has gone through the intellectual quest that is law school, and in my mind, career services offices ought to expand their knowledge of these areas in order to help students. For instance, one might consider business or entrepreneurship. I did a fairly quick google search for what appears to be dozens of available positions in this field, many of which do not require any special degree other than "some graduate level work." Why aren't students looking at these jobs?

I understand the position of others (including some who write for this blog) who opine that law schools should attempt to narrow the field of applicants, and tailor curriculum in a manner sufficient to more adequately prepare students for legal practice. All other things equal, I would agree. But legal education is a business (a big business) that is expanding and not going away any time soon. It is driven by rankings, and powered by the federal government's continual willingness to foot the bill for thousands of students who have about as much a chance of paying it back within three decades as Gigli does of becoming a cult classic.

So why not change the approach? A J.D. should be a general degree like an MBA, and schools should try to incorporate a wider cross-disclipinary focus into the basic curriculum. Good idea? Mabye, maybe not? Let's hear your thoughts.

The Economics of Book Covers

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The Philosophical Justification for Civic Capitalism

In a forthcoming article in the Emory Law Review, Scott Harshbarger and I address some of the issues that have come out of the recent financial crisis. In the next days and weeks, I'll be blogging about that article. But for now, I want to take a step back and talk about the philosophical justification for the position we advance in that paper. The discussion below doesn't appear in the article -- because of space limitations, we couldn't include it in the text. [NB: this is pretty long]

Informational Asymmetries, the Emperor's New Clothes and More Cries For Value

Early in 2009, we noted that the recession has exposed numerous deficiencies in the current legal education system. Accordingly, we argued for a systematic change in curriculum and focus. It appears that law students elsewhere are yearning for the same at their institutions. From The Daily Texan:

[C]riticisms [of the University of Texas Law School] are well-founded. In a survey of accredited law schools, Texas was the only school without a mandatory brief-writing course. In fact, only about half of first-year students surveyed reported being able to get into a brief-writing course. As a result, they will not be trained how to present arguments to a court — one of the most basic legal skills.

Instead of rectifying the problem by meeting national practical skills standards, UT Law instead chooses to steer law students away from taking practical courses by offering grossly grade-inflated first-year electives on such totally impractical topics as Race and Gender in the Constitution.

The first-year curve in all courses is set at 3.3; the average in these “electives” is a 3.8. A student in Race and Gender in the Constitution commented, “The class is a complete joke and a waste of time, but the professor gives almost everyone A’s.” Since law students’ employment is determined by their first-year GPA, creating such an exception to the curve is unfair to other students and misleading to employers relying on the veracity of student transcripts. . . .

So law students can game the system and come out Order of the Coif, while not knowing a single thing about the basic exceptions to the hearsay rule? I can vouch for the fact that this is an absolutely accurate characterization of the system as it is constituted both at my institution, and as the authors noted, at others.

But more pertinently, law school seems (oddly enough) to present a sort of transparent information asymmetry cogently illustrated by the student in this article: in many respects, law schools fail to meet the demands and expectations students have upon entering and that employers have when hiring. Yet, it seems like we all know a little bit of what we are getting at the outset; the sales pitch is just all too compelling. In this sense, law school is more like an experience good that shouldn't demand any sort of warranty. But the problems are still exceedingly pervasive. As the authors noted with respect to their institution:

[There is a] deeper problem at UT Law that has drawn criticism from all corners of the legal industry: Lax institutional standards have marginalized the law school’s role in society of preparing its students to be competent, ethical lawyers.

I hate to say it, but this problem is not confined to UT Law. We need major reforms soon, because permitting students to become engulfed in massive amounts of debt with little to no guidance on how to be competent lawyers will (inevitably, I think) continue to dilute the profession's quality, and worse yet, harm students' lives. Law students ought to be more vocal in their cries for change like the authors in the noted article.

California Love: L.A. County Faces Erosion of Middle Class

Good news keeps pouring in. . . . LA Times

University fundraising falls 12 percent over last year

From the Washington Post

How do you get your blog posts published into a book?

Be Nobel Prize winning economist Gary Becker, or legal intellectual giant Judge Richard Posner. Since 2004, both Becker and Posner have been writing a blog on current economic and legal issues. Recently, "their essays from that blog have been collected into a book, Uncommon Sense, which includes insights on everything from polygamy to organ sales to taxes on fattening foods." CNBC.

Is Law School a Good Investment?

Not according to the new research paper, "Mamas, Don't Let Your Babies Grow Up to Be Lawyers." From Economix:

The paper tries to measure the return on investment in a law school education, using three prototypical students (the “Also Ran,” the “Solid Performer” and the “Hot Prospect”). . . . The results are somewhat disheartening, especially considering the surging interest in law school during this tough job market.

Of course, there are a few problems with the methodology employed by the authors:

One big caveat with these types of rankings is that the inputs are different: The students who are accepted to Harvard — and then choose to attend — are probably different from the students who go to the University of Iowa, or for that matter, the University of Southern California, or Yale, or any other school.

Check out the article and the paper.

Judge Richard Posner . . . a Keynesian?

At the New Republic, Judge Richard Posner has confessed how the current financial crisis has caused him to become more attuned to the ideas of John Maynard Keynes and his vision of an interventionist economic policy where the government uses fiscal and monetary tools to counteract the cyclical--and, as this recent economic crisis perhaps illustrates, unpredictable--business cycle. As Judge Posner writes:

We have learned since September that the present generation of economists has not figured out how the economy works. The vast majority of them were blindsided by the housing bubble and the ensuing banking crisis; and misjudged the gravity of the economic downturn that resulted; and were perplexed by the inability of orthodox monetary policy administered by the Federal Reserve to prevent such a steep downturn; and could not agree on what, if anything, the government should do to halt it and put the economy on the road to recovery.

Central to Keynes' theory--the reason behind the now-apparent recovery, as the Judge writes--is that consumption is, after all, "the sole and end object of all economic activity." Sparing complicated mathematic explanations, this is partly because passive investments (i.e., income not necessarily infused into productive activity, but derived from savings) theoretically take some time to stimulate economic growth. Alternatively, active investments create income and essentially form what Keynes calls a "multiplier effect," further increasing the "incomes of people . . . on the receiving end [of any initial income spent on a given product]." Judge Posner uses this example:

When I buy a bottle of wine, the cost to me is income to the seller, and what he spends out of that income will be income to someone else, and so on. So the active investment that produced the income with which I bought the wine will have had a chain-reaction--what Keynes calls a "multiplier"--effect.

Consumption, in Keynes' theory, is the driving force of economic growth. And, as the Judge explains in this article, the government must effectively counterbalance times when consumption is lacking and hoarding is rampant. From this vantage point, Judge Posner notes that "[b]y now a majority of economists are in general agreement with the Obama administration's exceedingly Keynesian strategy for digging the economy out of its deep hole."

Keynes' theory, of course, presupposes business cycles. However, I have rarely seen consideration given to the structural imbalances in the capital structure of our economy. Many economists, in fact, quite convincingly show that reckless monetary policy obfuscates real interest rates, creating distortions in long-term demand for capital. In addition, persistent bailout guarantees and a hyper-expanding credit market have created perverse incentives for private market actors. Put another way, these instances may in some respect be attributed to bad government policy. So a question I must ask is that, even if Keynes' theory solves the structural distortions of the business cycle--a point which I am admittedly not equipped to debate--are there other policy measures directed at resolving potential core causes of the financial crisis that should be taken into account before we grant the government a medal of honor?

Check out Judge Posner's article.

The Taxman Cometh

Hello everyone, I will be (one of) your new bloggers here at BBL. I have a particular interest in tax law and economics so I found the following article interesting.

According to Bloomberg, Wegelin & Co., Switzerland's oldest bank, is requiring customers to dump their U.S. assets or close their accounts. As you might have guessed, Wegelin's decision has to do with the recent battle between UBS and the IRS. Essentially, Wegelin believes it will be less onerous to require its customers to dump their U.S. assets rather than comply with the ever increasing reporting requirements demanded by the I.R.S.

While the I.R.S. has a legitimate interest in collecting tax owed to it from U.S. citizens and certain foreign persons holding U.S. based assets, its efforts may cause more foreign banks to follow in the footsteps of Wegelin. And that my friends, is a bad thing.

Offshore financial institutions hold approximately $7 Trillion in assets. If these institutions start insisting their clients dump a certain asset class, the supply of that asset will increase and its price will tend to decline (assuming, like all economists, we ignore many of the realities of the universe). Thus, if offshore institutions start dumping lots of U.S. assets (likely a healthy chunk of that $7 Trillion dollars), U.S. asset prices will begin to decline.

Normally, it is not such a big deal that U.S. assets are getting cheaper. However, we are currently in the midst of a financial crisis that was precipitated in large part by the fall of asset prices. It is difficult for U.S. financial institutions to raise sufficient capital and "get healthy" unless the value of their assets begins to increase. Dumping large quantities of U.S. assets onto the market will make any financial recovery just a bit more difficult.

Should the IRS continue to pursue its crack down on tax-shelters? It depends. Does the short term gain of more (badly needed) revenue outweigh the potential cost of propping up more financial institutions in the future? The I.R.S. and our current administration certainly seem to think so!

In Ben & Tim We Trust? Nightmare #2

Never have I read a wire-report that has more inadvertently used a proper verb to describe the (ongoing and soon to worsen) economic mess that is Federal Economic Policy. Here, the word of choice is "divine." The entire paragraph that caught my fancy reads:

"With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely."

Divine, as in divination...as in the prophetic method used by the Roman priests to tell the Caesars what the upcoming warring season would bring.

Here's a dictionary definition (from Webster's):

div·i·na·tion

Pronunciation:

\ˌdi-və-ˈnā-shən\

Function:

noun

Etymology:

Middle English divinacioun, from Latin divination-, divinatio, from divinare

Date:

14th century

1: the art or practice that seeks to foresee or foretell future events or discover hidden knowledge usually by the interpretation of omens or by the aid of supernatural powers

2: unusual insight : intuitive perception

Things are so economically bad in this country that our Ivy-trained economists are no more useful at telling us what is going on than the Horoscopes.

Sweet dreams are made of these...

Nightmare of the Day #1

People who know your boy Ol' Fred know that he has been a bit of a Roubini in his outlook. I've been saying "the Inflation is a-coming" for a while-- any Econ major who DIDN'T go get his degree from an Ivy would tell you that keeping interest rates below 3% for months at a time eventually results in monetary inflation.

Well, ladies & gents, without much further ado, I bring you what I term "The Scariest Article In The World Today". While I don't agree with the final argument (that we will soon be seeing $100 Trillion bills), I do embrace the qualitative end-result.

My Question to you, dear BBLers, goes like this:

(1) Assume you are the average law graduate in 2010 with a mixed debt from undergrad and law school of approximately $110k (80k federal, fixed; 30k private, variable). Assume, also that the Fed has increased target rates to a reasonable 4% (so, given the historical spread, private lenders are going for between 6-7.5%). Your fed loans are capped at 6.8% per the Stafford agreement; your private loans are all over the place (some are at 2%, some are at 6% depending on when you originated them).

What steps, if any, can you initially take to (a) cut your interest rates; and (b) consolidate your loans into "one simple monthly payment."? I guess my question is-- can you go to Bank XYZ and say "I'm 110k in debt at a weighted average of about 6% (regardless of fixed v. variable). If you lend me 110k to pay it all back right now, I'll agree to pay you back at 6% fixed for a term of 10 years"? If so, what steps need to be taken; if not, why not?*

* I realize that there is a potential for transaction costs needing to be incurred. Notwithstanding that problem, I'm wondering what kind of pro-active solutions law students can take to stay ahead of a potential sky-rocketing interest rate in the near term?

Praising Pirates

Peter Leeson, an economics professor at the University of Chicago and George Mason University, wrote this article on NPR concurrent with the volume of work he has completed in the past year on pirate contributions to principles of governance, liberty and equality. He notes:

Pirates are getting a bad rep. Every month we hear more news of the Somali pirates' depredations, most recently involving an attack on an American crew. To be sure, these pirates deserve our condemnation. They're thugs and the world would be better without them. But we shouldn't let our condemnation of modern pirates spill over, unchecked, onto their more colorful, and socially contributory, early 18th-century forefathers.

Professor Leeson illuminates the structural characteristics of 18th century pirate regimes and the fascinating principles of self-governance embodied in their political philosophies, such as the "constitutions [they] established . . . [to govern] their roguish commonwealths," their embrace of "racial tolerance well before their legitimate counterparts," and their development of an early system of "social insurance . . . [enabling crews to compensate] maimed pirate[s]."

In these and many other ways, "[p]irates . . . implemented" essential tenants of liberty within system of self-governance "more than half a century before [James] Madison put pen to paper."

On a personal note, I strongly urge everyone to check out this page along with Professor Leeson's other work. He taught my capstone economics course when I was an undergrad, and his insights and views on economics and law were very thoughtful. I hope that you will find them interesting.

For the entire article, click here.