Author Archives: sdiamond

Henry Manne, 1928-2015

Steve Bainbridge writes here of the passing of Henry Manne, one of the most important legal thinkers of the late 20th century. I did not know Henry at all personally until one evening a few years ago I was very pleased, out of the blue, to receive an email from him commenting on a paper of mine that had been posted on SSRN. That led to a brief but fruitful exchange of ideas about law and capitalism that proved very helpful in my own thinking and apparently, while he was perhaps just being polite in saying so, in his own thinking as well. Henry was someone who I think, alongside the late Benoit Mandelbrot whom I also was privileged to get to know in a similarly random way, should have received a Nobel Prize. Henry’s work and ideas will be of significance for a very long period of time and deserve careful study.

Remembering the words of Thich Nhat Hanh on Martin Luther King’s day

While many tomorrow will, understandably, recall Rev. King’s “I Have a Dream” speech, I often think of another of his great speeches, one that was, in some ways, more radical and disconcerting because he linked his struggle for racial justice to US foreign policy.

It was delivered in New York in 1967 and can be heard here.

There is also a personal aspect of that speech for me because my young son’s great uncle, Thich Nhat Hanh, was quoted by King in the speech:

“This is the message of the great Buddhist leaders of Vietnam. Recently one of them wrote these words, and I quote: ‘Each day the war goes on the hatred increases in the hearts of the Vietnamese and in the hearts of those of humanitarian instinct. The Americans are forcing even their friends into becoming their enemies. It is curious that the Americans, who calculate so carefully on the possibilities of military victory, do not realize that in the process they are incurring deep psychological and political defeat. The image of America will never again be the image of revolution, freedom, and democracy, but the image of violence and militarism.'”

Thich Nhat Hanh had met with King when he came to the United States from Vietnam and apparently had a significant impact on King’s thinking. In fact, King nominated him for the Nobel Peace Prize. This year, Thich Nhat Hanh is quite ill so there is a poignancy to this important historical connection. It is also the case that now is once again a time when America must find a way to stand for “revolution, freedom and democracy” as the events in Paris and the middle east remind us.

As market reality sets in law school critics get testy

As the economic recovery continues and evidence emerges that the job market for lawyers is continuing its steady growth, the small group of hard core law school critics is getting a little nervous. From the very beginning the critics have been fueled by misguided notions about how markets actually work and severely challenged abilities to understand the empirical evidence of the relative health of the market for lawyers.

One recent example is an ongoing exchange between Professor Ted Seto of Loyola Law School and blogger Matt Leichter. Seto had the temerity to note that projections about future legal employment made by the BLS, long and heavily relied upon by law school critics, had recently been adjusted. Under the old, now discredited, BLS methodology it appeared that law schools, collectively, were graduating far more JDs than could be absorbed by the market. It turns out the opposite is very likely to be the case, as Seto explains quite clearly.

Now retired lawyer Steven Harper expands the critics’ new offensive with a claim that many law school deans and professors will soon declare the “crisis” to be over. He provides no basis for this claim, which he likely will suggest was purely rhetorical. It is extremely rare that “many” deans, much less “many” law professors, ever declare anything collectively to be true. I don’t know about the law schools Harper is familiar with, but we have trouble getting committees of seven people to agree on a time for a meeting.

Unfortunately, this kind of rhetoric is typical of the way he plays loose with the facts. It’s the kind of approach one has come to expect from Harper, as demonstrated here and here. In the same post, for example, he relies on data for something he calls “total legal services employment” with a link, not to the original data – which is from the BLS, but to a compilation of the BLS data by Ben Barros for the blog Faculty Lounge.

This data shows a slight decline, he notes, between the end of May 2013 and the end of November 2014 of 100 jobs (out of a total of more than 1.1 million.)

This leads to his key conclusion: that despite what he admits is an overall macroeconomic recovery, “the hoped-for increase in attorney demand was nowhere to be found.”

There is only one problem, well, actually three problems.

First, Harpers fails to explain that the data Barros provided is seasonally adjusted.

This means the data has been smoothed by the BLS wizards to provide a different picture of the labor market. The BLS does this with its employment numbers because it can sometimes be helpful to abstract away from seasonal ups and downs in the labor market. But that also means you are not seeing the actual employment data and that you will not get end of year averages. More specifically in the law context, while the BLS has its own reasons for seasonal adjustment one impact is to reduce the employment numbers in summer months failing to show the impact of hiring of summer associates.

In fact, the unadjusted data (link below) show an increase in legal services employment between May 2013 and November 2014, from 1,131,300 to 1,134,800.

Second, the data category Harper uses includes more than just lawyers. Now Harper notes this in a parenthetical reference but he does not explain it. In fact that “legal services” category includes so many non-lawyers (e.g., some 270,000 paralegals) that the category is nearly double the size of the number provided by the BLS for people actually working as lawyers. Of course, the ups and downs of that larger “legal services” category tells us something about the state of the legal industry though what exactly is not entirely clear. But it is not automatically a good proxy for “attorney demand” and Harper makes no case that it is, instead he just blindly relies on it.

This might be ok if we did not actually have data for people who do work as lawyers but in fact the BLS tracks that, too. Inconveniently for Harper, however, it shows a fairly steady recovery in employment (and incomes) for lawyers since the onset of the 2008 crisis.

As I pointed out in a recent post: “The number of lawyers employed in the US has risen steadily every year over the last decade (except for a one time drop in 2008 to 553,690) to a high in 2013 of 592,670. Average annualized earnings have grown every year as well from $107,800 in May of 2003 to the May 2013 total of $131,990.”

(There were 425,170 people working as lawyers in May of 1997. That climbed to 504,370 in May, 2002 and hit a pre-crisis high of 555,570.)

The third problem is that even if one only had the “legal services” employment data, that data actually shows steady recovery from the crisis, too. Here is a link to the entire data set month by month for the last decade, non-seasonally adjusted, thus allowing the creation of annual averages. So at year end, what do annual averages show?

That jobs in legal services grew steadily from 2004 to 2007 and then as the crisis took hold fell off in the following three years (2008-10) before beginning to grow steadily over each of the next four years (2011-2014) hitting a number last year higher than any since 2008.

In fact, if Harper had gone back to the original data he could have seen that even his seasonally adjusted number (data set here) improved from November to December in 2014.

Of course, steady recovery over the last several years in employment of lawyers does not mean the crisis is over for law schools. Just as many more students delayed job hunting by going to law school post 2008, now the delayed impact of the inevitable downturn in enrollment is hitting home.

It does mean, however, that the dominant meme of the law school critics – that law schools themselves are fraudulent institutions that should be radically restructured if not eliminated – is discredited.

“It’s the economy, stupid,” as James Carville famously pointed out, not the allegation of central planning made by the critics and their right wing friends at the Cato Institute.

As explained here and many other places, law school enrollment tends to be counter-cyclical. Law school was seen in the past by many recent college grads as a place to hide out if economic conditions were weak. Since most business downturns subside more quickly than the 2008 crisis, this was a reasonable strategy. But it proved unworkable with such an unusually severe and prolonged downturn. So an overhang of law school graduates was created and it will take time for that to resolve.

Perhaps even more important to take note of: law schools are not great at tightly controlling the production of new lawyers. We don’t have central planning in the US. Despite what the critics may think of the ABA it does not exercise Stalinist levels of control over law schools in our free market society. So there is always going to be some level of mismatch between supply and demand.

Meanwhile, Ted Seto is probably right to note the potential for a swing in the opposite direction now. What led to oversupply over the last few years may lead to undersupply in the near future.

A related data point (also based on historical BLS and ABA data, not projections) is significant: while law schools specialize in producing licensed lawyers, that does not mean they produce graduates who predominantly work as lawyers. The ABA tracks the number of licensed lawyers in the US and the BLS, as noted, tracks the number of people working as lawyers. Over the past 17 years (I could not access precise BLS data for lawyers prior to that), slightly less than half of all licensed lawyers are, it appears, actually working as lawyers. (There are others who work as judges and in other JD-required roles.) I think it’s reasonable to presume that relationship has been stable for some time. (It was 45% in 1997, 49% in 2003 and 47% in 2013.)

Whether we admit it or not, in other words, law schools have for a long time been in the business of producing almost as many non-working lawyers as working lawyers – and that is not a function of any kind of misleading brochures handed out by marketing staff. It’s a function of the value of a JD to the many thousands of people who continue to maintain their law license even though they are not working as lawyers. That’s why the best study of the earnings premium associated with a JD – by Simkovic and McIntyre – is able to demonstrate a career earnings premium for the JD itself not for a career working as a lawyer.

No one wanted the kind of mismatch in JD’s and jobs that occurred after 2008. And I didn’t want to sell my home at a significant loss in the wake of the crisis either. But as court after court has pointed out law students cannot blame the law schools for the problems of the wider economy any more than I can blame the bank that loaned me money to buy my house. Had the law school critics taken up the calls for debt relief that I and others issued instead of worrying about over-wrought theories of law school as a scam, thousands of recent graduates might be better off today.

Washington Post joins the myth making about law schools and legal employment – New Year’s Update

There is no question that law schools have suffered from the impact of the dramatic collapse of the world economy in 2008. Because of a lag effect the full impact was delayed a couple of years but now indeed enrollment has dropped significantly.

The delay in the enrollment decline occurred because new college grads tried to flood into law schools from 2008-2010 in order to wait out the economic turmoil. The problem they then faced was that the recovery only took hold in 2012-13 and that meant oversupply in the market. The enrollment bubble can be seen in this chart prepared by the ABA. As the economy took off under the influence of low interest rates in 2003 enrollment steadily climbed and jumped up significantly as the credit crisis was in full swing. The peak in first year enrollment was in AY2010-2011 at 52,488. The continuing impact of that bubble period is indicated by the fact that the highest number of JD’s ever awarded in the US occurred in 2013, three years after the peak of first year enrollment.

Now, of course, law schools face both a reputational effect of that oversupply problem and the fact that with a wider economic recovery underway law school is no longer necessary as a hiding place for unemployed college grads. Many college graduates can get jobs right away with just a BA, even if these gigs don’t pay as well as lawyering.

Ironically, and as has happened in several prior business cycles, the decline in the attractiveness of a JD is occurring as the legal employment market is steadily recovering. New BLS data analyzed by Ted Seto at Loyola Law School in Los Angeles suggests there will be a shortage of lawyers beginning as early as 2016. One legal industry consultant, Peter Zeughauser, told the Wall Street Journal that “the legal industry across the country was faring better than in the years following the financial meltdown of 2008. ‘For the first time in six years, the legal economy is back on track,’ he said.”

These basic facts about economic cycles and the BLS data on legal employment do not bother the Washington Post, however. Their legal reporter Catherine Ho reports today that there is a “shrinking job market for young lawyers” and a “major retrenchment” underway since 2008 in the legal sector.

This would certainly come as a surprise to the many large law firms handing out bonuses that are larger than any they have awarded associates since 2007. The conclusion also flies in the face of the data the BLS carefully assembles on legal employment and wages. The number of lawyers employed in the US has risen steadily every year over the last decade (except for a one time drop in 2008 to 553,690) to a high in 2013 of 592,670. Average annualized earnings have grown every year as well from $107,800 in May of 2003 to the May 2013 total of $131,990.

And even in Washington, D.C.’s lawyer rich environment, legal employment and incomes have recovered steadily. Employment reached a crisis period low of 28,390 in 2010 but hit 31,810 in 2013, well in excess of the pre-crisis 2007 number of 29,060. Average annual earnings have been slightly more volatile but hit $162,800 in 2013, a significant bump up from the pre-crisis number of $143,520 in 2007. In fact, lawyer incomes increased in DC in 2008, 2009, and 2010, with a slight drop in 2011 before hitting a record high $165,590 in 2012 and then settling back in 2013.

These numbers hardly suggest a shrinking market much less a major retrenchment. It is possible that the Post, like many law school critics, prefers anecdotes to data, so I asked the Post reporter Catherine Ho if she could provide me the basis for her reporting but have not yet received a reply. If I receive it I will update this post.

[New Year’s Day Update: Ms. Ho has not yet responded to my inquiry. The facts about a recovering economy are hard to deal with for the law school critics. Even the man made global warming crowd in a post authored by Professor NPV himself chose to ignore what the BLS data and other indicators of rising lawyer employment and incomes tell us in their quixotic effort alongside their friends at the Cato Institute to destroy the American law school.

[A year by year look at enrollment indicates that enrollment flattened and even fell during the impact of the dotcom bubble then started to rise when that bubble burst only to flatten again once the real estate bubble took hold, then rose again as that bubble burst only to start falling off now that recovery has – slowly – started to take hold. It is this kind of cycle effect that mystifies the law school critics in a manner that is reminiscent of those who used to think man caused global warming. At least the global warming crowd has had the courage to change their mantra to “climate change.”]

Putin dances to the tune of fictitious capital

Today’s Financial Times has a front page story on the newest stage of the Russian crisis. Putin’s Russia is being hit by both western sanctions as a result of its invasion of its sovereign neighbor, Ukraine, as well as by a glut in the supply of global oil.

This chart indicates the significant downward move in oil prices:

ChartBuilder-1

As a result, the world market is marking down the value of the Russian economy and hence the ruble is tanking in value.

In response, Putin is now forced to pump large amounts of cash into the banking system to keep key financial institutions afloat. The latest infusion amounts to close to $8 billion for three major banks. While the regime is claiming the ruble crisis is over, the FT story includes the following: “This is only the beginning,” said a senior executive at a large Russian financial institution. “Everyone is bracing for what comes after new year.”

Indeed the news about the bank infusion sent the ruble down again Friday after a rally earlier in the week. The overall damage of recent months is clear in the chart below:

ChartBuilder

Meanwhile in a recent speech Putin continued to make noise about diversifying the Russian economy which is another way of admitting that a quarter century of post-Cold War political and economic development has largely been a waste for the majority of Russians (and for much of the former eastern bloc as a whole it might as well be said, Ukraine first and foremost).

Thus, the Cold War may be over but we are far from resolving the fundamental imbalances in the global economy. These have now become so severe that countries like China and Russia are increasingly willing to confront the West with provocative actions like the Ukraine invasion and the assertion of Chinese sovereignty in the south China sea area.

It is understandable that we sympathize with the victims of this kind of aggression but pushing counties like Ukraine to choose Nato membership over genuine autonomy, which has been US policy for years, only stokes the tensions with Russia and provides Putin with political capital that he uses to shore up his own domestic position. Sanctions, too, are a dual edged sword. It is true that Russia needs the world economy but authoritarian forms of capitalism have been very stable over time. As the crisis deepens inside Russia it is just as possible that it will lead to greater centralization of power by Putin and his military and bureaucracy.

Leading study of JD’s million dollar value published in Journal of Legal Studies

The widely respected Journal of Legal Studies has now published “The Economic Value of a Law Degree,” the most important and widely discussed study of the value of earning a JD authored by legal scholar Michael Simkovic and economist Frank McIntyre.

The study concludes based on exhaustive empirical analysis that includes the impact of the recent recession that “a law degree is associated with median increases of 73 percent in earnings and 60 percent in hourly wages. The mean annual earnings premium is approximately $57,200 in 2013 dollars. Values in recent years are within historical norms. The mean pretax lifetime value of a law degree is approximately $1 million.”

A working paper version of the article released last year triggered an intense debate because it provided strong empirical evidence that, despite the difficulties of recent law school graduates, over a career a JD had significant value relative to entering the workforce with only a BA. The concrete data assembled by the authors flew in the face of the anecdotal approach taken by most critics of the JD who dominated discussion of the future of law school in the wake of the economic crisis. Examples of the debate can be found here, here and here.

Here is the full abstract from the article:

“We investigate the economic value of a law degree and find that for most law school graduates, the present value of a law degree typically exceeds its cost by hundreds of thousands of dollars. The median and 25th-percentile earnings premiums justify enrollment. We track lifetime earnings of a large sample of law degree holders. Previous studies focused on starting salaries, generic professional degree holders, or the subset of law degree holders who practice law. We incorporate unemployment and disability risk and measure earnings premiums separately for men and for women. After controlling for observable ability sorting, we find that a law degree is associated with median increases of 73 percent in earnings and 60 percent in hourly wages. The mean annual earnings premium is approximately $57,200 in 2013 dollars. Values in recent years are within historical norms. The mean pretax lifetime value of a law degree is approximately $1 million.”

Some critics claimed, inaccurately, that the paper was not subject to peer review. It was, however, peer reviewed prior to its circulation in working paper form (as I explained here) and now has been published in a leading refereed journal published by the University of Chicago Press.

As the economic recovery from the collapse of the 2008-10 period continues its momentum there is some evidence that applications to top tier JD programs remain strong with applicants with very LSATs now having increased. Nonetheless, second and third tier schools remain challenged to survive the prolonged economic cycle. This study, however, is likely to reinforce the argument that the JD and law schools remain a viable and important economic institution.

The Facebook effect: secondary markets and insider trading in today’s startup environment : Research Handbook on Insider Trading

Coming out in (relatively) affordable paperback soon. Order now in time for the Xmas holiday gift giving season!

Source: The Facebook effect: secondary markets and insider trading in today’s startup environment : Research Handbook on Insider Trading

Schooled, In debt, Struggling


Frank Wu, the dean of UC Hastings College of the Law, flutters about his third-floor office adjusting things, making sure his emails are answered and…

Source: Schooled, Indebt, Struggling

An up close and personal portrait of the challenges facing an important Bay Area law school as the “new normal” takes hold in legal services and education. A must read.

In victory for women’s rights, California agency blocks anti-choice effort at two universities

In a clear affirmation of the longstanding right of women and girls in California to choose whether or not to terminate a pregnancy, the Director of California’s Department of Managed Health Care (DMHC) this week rejected a multi-year effort by the administrations of two California universities affiliated with the Catholic Church to limit coverage of abortions in their employee health care plans.

California has long led the nation in the protection of a woman’s right to effective reproductive health care. Since the early 1970’s case law, statutes and the state Constitution itself have made it clear that under California law all women and girls possess a right to choose whether or not to terminate a pregnancy. Thus, the California Constitution enshrines an express right to privacy as a result of an amendment that followed court cases recognizing a woman’s right to choose. This was followed more recently (2002) by the Reproductive Privacy Act (RPA) which guarantees a woman’s right to both terminate a pregnancy and to birth control.

These fundamental rights to reproductive health care are reinforced by statutes that require state regulated health care plans including insurance plans and HMOs to provide coverage for safe and effective means to terminate a pregnancy once a woman or girl has exercised her right to choose that outcome.

There is only one category of abortion that an HMO or insurance provider would not be required to cover: an abortion that is illegal under the California Reproductive Privacy Act (termination of a pregnancy of a viable fetus is illegal under the RPA).

(One aspect of the law that confuses many is the question of what is a non-medically necessary abortion. Some anti-abortion advocates characterize such an abortion as “elective.” In fact, there is no category called “elective” abortion under California law unless one is referring to the right of a woman to “choose” to have an abortion (for whatever reason) in the sense that she may elect to have an abortion. A 1967 California statute called the Therapeutic Abortion Act attempted to create a distinction between abortions needed to protect the life of the mother and other abortions. At the time this was an advance from an era where all abortion was illegal. But the California Supreme Court struck down that attempt to create different classes of abortions In People v. Barksdale (1972) as “impermissibly vague.” The effect was to recognize abortions generally as legal in California prior to the US Supreme Court decision in Roe v. Wade. The TAA remained on the books, however, until expressly repealed by the RPA when it went into effect in 2003.

(The choice to have an abortion is, thus, separate from what kinds of medical or surgical methods are safe and effective to carry out that choice. Any such safe and effective method is considered “medically necessary” under the Knox-Keene Act and therefore will be part of providing a basic medical service that must be covered by a plan licensed under the Act by the DMHC, as the letters to the major insurers from the DMHC make clear. A non-medically necessary abortion is an oxymoron. Confusion may exist because some insurers explain to their beneficiaries that a request to use a drug like RU-486 for treatment of a medical condition other than pregnancy is considered “experimental” and therefore not “medically necessary.”)

Despite this clear Constitutional and statutory framework, in place since the mid-1970’s, certain entities affiliated with the Catholic Church have attempted to put in place new categories or distinctions that would carve out certain abortions from those that are protected under California law.

A few years after a resounding legal defeat at the California Supreme Court in 2004 (in an attempt to overturn the Women’s Contraception Equity Act), the Catholic Church apparently used its influence at Loyola Marymount University to get the University and its insurers to engineer in secret approval by the DMHC of an HMO product that would have prevented coverage of what Anthem called “elective” abortions as well as a wide variety of birth control methods. This restriction was approved in a hidden administrative process inside the DMHC, which has regulatory authority over the HMO industry in California, during the Schwarzenegger governorship. For more detail on that effort see my earlier post here.

DMHC records obtained through a Public Records Act request suggest that that 2008 decision was made on the basis of a relatively thin legal analysis with no reference to the Constitution or the RPA. In any case, Anthem did not in fact sell any HMO product based on that 2008 interpretation by the DMHC. Only in 2013 did Loyola Marymount University and Santa Clara University, both Jesuit affiliated schools, announce their intent to buy health care plans from Kaiser and Anthem that would exclude some abortion coverage.

Their announcement of this intention included new categorizations of abortions called “medically necessary” and “elective.” The new plans would have eliminated whatever was considered an “elective” as opposed to a “medically necessary” abortion. As explained above, the concept of an “elective” abortion does not exist in California law. Tellingly, neither the Universities nor the insurers ever definitively explained what kinds of abortions these new categories would include and provided no legal basis for these distinctions. At one point, Santa Clara University proposed language that mirrored that of the Hyde Amendment, attempting to define any abortion that was undertaken for anything other than to save the life of the mother as “elective.” Again, there was no basis for this kind of discriminatory language in California law, as the DMHC has now unambiguously agreed.

Faculty at Santa Clara University objected to this effort by the University Administration and its Trustees and, with the strong support of the campus chapter of the American Association of University Professors (AAUP), convened a special session of its Faculty Senate, apparently for the first time in the 150 year history of the school, to affirm its objections to the University’s new policy effort. Specifically, faculty objected to the failure of the University to abide by its commitment to shared governance in attempting the policy change. A campus wide vote of the faculty overwhelmingly approved this objection.

Several faculty demanded that the University define these new categories so that employees could understand the implications for their health care and to provide an explanation why these categories had a legal and constitutional basis in California. Many university staff and several student groups supported these efforts.

The University was never able to answer that challenge. University officials said they were attempting to answer those questions in conversations with Kaiser and Anthem. But no clear answer was ever provided. Instead, in the face of continued faculty and staff efforts to block the policy change, the trustees of Santa Clara publicly backed up the Administration and even went so far as to suggest that they were morally obligated to stop coverage for abortion because women faculty and staff might be using abortion to engage in “gender selection” of their children. This claim outraged many on the campus because it was not only facially absurd and not backed up by any serious research (in fact, quite the opposite, see here and here) but a racial slur aimed at Asian American communities. Unfortunately, this kind of charge has been used more widely of late by many in the anti-abortion movement.

Several faculty members at both SCU and LMU began a concerted effort last fall to raise objections to the proposed new restrictions with the State of California. Working closely with several advocacy groups including Planned Parenthood Affiliates of California, the ACLU of Northern California, the Trust Women Silver Ribbon Campaign and the National Health Law Program, extensive discussions with the DMHC took place.

Finally this past week the DMHC agreed unequivocally that the proposal by the University administrations at LMU and SCU had no basis in California law.

The Director of the DMHC, Michelle Rouillard, admitted that earlier approvals of new products that would have ended coverage of legal abortions were wrong. Further, she stated, using new discriminatory categories and limitations like “elective” abortions was inconsistent with both the California Constitution and the Knox-Keene Act. The letter, sent to seven major insurers, can be found here.

There has been widespread media coverage of the effort by SCU and LMU faculty and staff to defend reproductive freedom here, here and here. The ACLU has posted a blog about the DMHC letters here.

My review of Human Rights and Transnational Solidarity in Cold War Latin America ed. by Jessica Stites Mor

Misguided approaches to the Cold War and the authoritarian regimes supported by both Washington and Moscow abound. My hope that this volume would do a better job were disappointed.

Human Rights and Transnational Solidarity in Cold War Latin America