Author Archives: sdiamond

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.

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 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.

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.

Global Tectonics: Pentagon confronts militant dilemma in Africa

As this story and fascinating accompanying map indicates, the US military presence in Africa follows major conflicts at the heart of global tectonics – the setting where a global grab for natural resources (from minerals to ivory) is uprooting traditional societies. Fundamentalist reactions are legion and thus the growing security problem.

The hum of US drones is becoming more familiar over African skies. From Nigeria to Somalia, US military presence on the continent is a creeping reality. US troops may be thin on the ground, with the Pentagon preferring to rely on training and

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Source: Pentagon confronts militant dilemma in Africa – FT.com

Global Tectonics: Why global water shortages pose threat of terror and war

From California to the Middle East, huge areas of the world are drying up and a billion people have no access to safe drinking water. US intelligence is warning of the dangers of shrinking resources and experts say the world is ‘standing on a precipice’

Source: Why global water shortages pose threat of terror and war | Environment | The Guardian

Is the stock market “rigged”? Evidence from the NYSE – presented at NU Kellogg and Duke

My co-author Stanford-based economist Jenny Kuan and I each traveled to different parts of the country recently to present our research on the problematic changes in stock market structures. I presented the paper at the meetings of SASE held at Northwestern’s Kellogg School of Business and Jenny presented the paper at the ISNIE meetings at Duke. We got helpful comments from both events and are honing in on a new draft for submission to a peer reviewed finance journal. Here are the slides I used in Chicago.

The hidden history of the Equal Rights Amendment – my newest book, better late than never

thThe Center for Socialist History has just published my book The Hidden History of the Equal Rights Amendment which I had the privilege of co-authoring with the late Hal Draper.

I drafted a new foreword for the book but it is otherwise unchanged from the original ms. which Hal and I finished in the late 1980’s in the wake of the defeat of the ERA. There has been some research on the Amendment since and certainly some important developments with respect to the rights of women but the publisher and I thought it important to retain the argument as it was completed then, more or less contemporaneously with the end of that era of the women’s movement. We did, of course, try to get it published then but ran into roadblocks which I describe briefly in the foreword.

The history we examine in detail is very much in the news today as this essay by Louis Menand in a recent New Yorker suggests. Menand gets some important aspects of the story wrong, however. I have sent the magazine a short letter in response and will wait to see if they print it before laying out my comments here.

Michael Lewis is right about Wall Street and high frequency trading, Congress must act

This post is co-authored by Stephen Diamond and Jennifer Kuan. Jennifer is an economist based at the Stanford Institute for Economic Policy Research. The post is based in part on an event study we conducted on the impact of Reg. NMS. We will be presenting the paper at the meetings of both ISNIE (Duke) and SASE (Northwestern) this summer.

A firestorm erupted on Wall Street recently sparked by author Michael Lewis’ accusation that the stock markets are “rigged.” Mr. Lewis’ bases his claim on the allegedly manipulative behavior of so-called “high frequency traders,” or HFTs, in today’s financial markets.

Our own study of the changing structure of those markets over several years leads us to conclude Mr. Lewis is correct when he contends many investors trade at a disadvantage to HFTs. We found a significant widening of “spreads,” and therefore costs to investors, following rule changes by the SEC in 2007. Significant structural reform will be needed to restore transparency and fairness to our financial system.

While the issues at stake are complex, the heart of the matter is that HFTs have largely replaced stock exchange “specialists” as intermediaries between buyers and sellers of shares. HFTs trade large volumes of stock, so they claim to provide “liquidity” to the markets. This sounds reassuring to investors who think they can easily buy or sell at reliable and visible prices.

In fact, HFTs are largely free of the obligations and oversight once imposed on specialists by the New York Stock Exchange. HFTs are not mandated to maintain an orderly market like specialists and often disappear at the very moment they are so desperately needed. There is evidence this kind of behavior contributed to events like the “flash crash” of May 2010 as well as the failed IPO of Facebook in 2012.

Exchanges are now eager to profit from HFTs’ vast trading volumes so they help HFTs exploit advantages over other investors, allowing the use of complex and arguably manipulative order types as well as selling them access to data about other investors’ orders. Other enablers of HFTs include the telecommunications firms that allow the HFTs to engage in “fiber arbitrage” to gain privileged high-speed access to data and markets. HFTs use these advantages to move more quickly and flexibly than other investors and thus to trade ahead of ordinary investors at a profit.

The most important enabler, however, is the federal government itself. In 1975 Congress mandated the creation by the SEC of a “national market system.” Congress decided that if the SEC could create computer-based competition with the long dominant New York Stock Exchange’s manual trading floor then costs for the average investor would fall.

The SEC implemented a wave of new rules over the next thirty-five years that did, in fact, reduce trading costs. New electronic markets such as the Nasdaq now compete effectively with the NYSE. Smaller startup companies like Intel, Apple and Microsoft, which did not meet the stringent listing standards of the NYSE, were able to access investor capital on the Nasdaq.

But this was not enough for the SEC. Their goal was an end to the NYSE’s dominance of trading in blue chip firms listed on the NYSE. As the Charlie Sheen character Bud Fox would famously say in the film Wall Street, they were “going after the majors.” One backer of the new approach was Bernie Madoff, who led the automation of the Cincinnati Stock Exchange in the 1980s to draw trading volume away from the NYSE.

The NYSE and the large banks that dominated its board resisted these efforts for many years. But new demand for faster trades from institutional investors provided the political support the SEC needed to push through Regulation National Market System, or Reg. NMS, in 2007.

This was the straw that broke the camel’s back.

Until 2007, despite the earlier rule changes by the SEC, the NYSE still handled more than 80% of the trading volume of companies listed there. The NYSE was a monopoly but it stabilized price changes with narrow spreads using a self-regulatory framework crafted over its 200-year history.

Two features were key to that framework. First, because large underwriting firms wielded significant influence at the non-profit member-owned NYSE, they could and did impose stringent standards on firms that wanted to list their shares on the Exchange. Second, to attract investors to trade on the Exchange those same underwriters insured that floor brokers and specialists behaved fairly. The result was good quality information about listing firms as well as orderly pricing facilitated by specialists in both bull and bear markets.

But Reg. NMS uprooted that system. Brokers could now route their clients’ trades to any electronic venue even if it meant that the client did not get a better price available on the NYSE floor. As a result, the volume of NYSE shares traded off the NYSE exploded. The motivation to own the Exchange in order to attract investors with orderly prices was gone and the underwriters quickly sold the Exchange to public investors.

With stock prices no longer kept in check by the NYSE’s longstanding rules, our study found that spreads widened, volatility increased and the cost to the average investor went up. Congress had a useful idea in 1975 when it helped create a market for risky technology start-ups and other small firms. They need to step in again to deal with the unintended consequences of that important innovation.