« July 2017 | Main

August 21, 2017

Herwig Schlunk’s latest misguided critique of higher education (Michael Simkovic)

Vanderbilt Tax Professor Herwig Schlunk wants the federal government to tax university endowments, preferably out of existence.  He writes:  “In the best of all possible worlds, the federal government could and probably should . . . confiscate[e] all private university endowments . . .”

Toward that end, Schlunk recycles arguments that were discredited years ago.

Professor Schlunk is famous for asserting that law school is a bad investment.  Schlunk’s bold claim—based on back of the envelope calculations and highly unscientific website surveys—was popularized by the Wall Street Journal and echoed by sympathetic media outlets.  Peer reviewed research by labor economist Frank McIntyre and me—using high quality nationally representative government data and well-established econometric techniques—subsequently demonstrated that Schlunk was mistaken. (See here and here).

This post criticizes Schlunk’s recent work on endowments for misuse of discount rates, overlooking the importance of educational quality, mismeasuring student earnings and higher education expenditures, selectively targeting higher education, supporting policies that undermine economic growth, and overlooking stark differences between popular votes and political power.

Misuse of discount rates

To arrive at his headline-grabbing law school result, Schlunk relied on some spectacularly unrealistic assumptions.  As Frank McIntyre and I explained four years ago:

“Professor Schlunk’s analysis assumes astronomical discount rates, low earnings growth rates, and zero inflation for thirty-five years. None of these assumptions are empirically or theoretically justifiable.

Most studies [of higher education] by economists have generally used a discount rate between 2.5% and 3%. . . . Compared with the 3% discount rates applied in labor market studies by economists and suggested by the real (net-inflation) costs of financing a law degree . . .  Professor Schlunk applies real discount rates of between 8% and 27%. 

If Professor Schlunk had used comparable assumptions about discount rates to evaluate the value of a college degree compared to a high school diploma, he would have reached the conclusion that few should go to college. Indeed, given a 30% nominal discount rate, whether it makes financial sense to complete high school might be debatable.”

Undeterred, Professor Schlunk once again relies on unrealistically high discount rates and overlooks differences in completion rates, this time to argue that private non-profit universities provide little value when compared to leanly funded, politically vulnerable public universities.  Based on this analysis, he concludes that the federal government should tax universities more heavily than it already does.  Higher discount rates mean that future cash flows have a lower present value.  Thus the value of a lifetime of higher earnings from higher quality education is diminished by choosing a higher discount rate.

Schlunk’s justification for using such high discount rates is that higher education “puts me in mind of income streams I confronted when advising investors in the private equity sector [where] discount rates of as high as 30% were generally applied.”[1]

For the record, peer reviewed research generally finds that private equity returns net of fees are close to or less than those that can be found in the stock market—not remotely close to the 30 percent returns assumed by Schlunk.  (In addition, discount rates are supposed to reflect the weighted average cost of capital, NOT the (higher) returns to equity).[2]  If P.E. investors were applying high discount rates to cash flow projections, this likely means that investors believed that P.E. cash flow projections were over-optimistic.

Overlooking college completion rates

In his latest critique of higher education, Schlunk also overlooks large differences in completion rates.  Four-year completion rates for bachelor’s degrees are almost twice as high at private non-profit universities as at their more leanly funded public counterparts. If one accepts Schlunk’s assumptions of extremely high discount rates, even a modest delay in completion would have a dramatic impact on value.

Overlooking effects of increased educational expenditures and educational quality

Peer reviewed studies that control for differences in student characteristics consistently find that higher expenditures per student lead to significant increases in student earnings and likely contribute to higher completion rates.  (For brief reviews of the literature, see The Knowledge Tax and Populist Outrage, Reckless Empirics; See also here). 

Professor Schlunk overlooks these studies.  

Mis-measuring student earnings and educational expenditures

Schlunk overestimates the difference in expenditures and resources at elite public and private universities, which leads him to over-estimate the earnings premiums necessary for more resource-intensive private education to be worthwhile.  Schlunk assumes incorrectly that all students at elite flagship state universities pay low in-state tuition, when many students at these institutions pay much higher out-of-state or international student tuition.  He overlooks the extent to which expenditures per student at elite public universities exceed in-state tuition because of state subsidies and cross-subsidies from out-of-state students.  He overlooks the extent to which differences in financial aid affect net-tuition—and therefore educational resources and expenditures—at different universities.

The elite public universities that Schlunk presents as controls that he sees as similar to private universities, but without endowments, actually have larger endowments than many private universities.  

To the extent that Schlunk uses earnings data—again from non-representative website surveys—he focuses on median rather than mean earnings, which very likely reduces his estimate of the value of higher quality education to students or society.  He does not control for differences in student characteristics. It is unclear whether he takes into account differences in subsequent graduate school attendance. 

Selective targeting of higher education

Schlunk’s narrow focus on universities is peculiar: his critique of charitable contribution deductions as “inefficient” and “undemocratic” applies even more forcefully to other charities, such as many churches, healthcare organizations, and especially think tanks–which he does not mention. 

Many think tanks are officially recognized as 501(c)(3) educational organizations, notwithstanding the fact that they educate no students, confer no degrees, primarily produce advocacy with little resemblance to scientific inquiry, offer little protection for their research staff from politically motivated firings, and function as de facto corporate lobbies.  Think tanks have collectively attracted billions of dollars in tax-deductible charitable contributions. 

Undermining economic growth

Schlunk believes that the federal government should raid university endowments to pay for its other priorities.  As Schlunk puts it: “any expenditure made by the federal government presumptively reflects the will of all 321 million of us.”

None of these expenditures stand to generate as much economic growth as investment in education.  Government investment in education pays for itself in higher future tax revenues and lower burdens on social insurance programs.  Only around 3% of federal spending and 3% of GDP is devoted to higher education.   Extremely high returns on investment in higher education suggest underinvestment

Overlooking differences between popular votes and political power

Schlunk’s view that our national system of representative government reflects popular democracy is a perspective with which those familiar with the electoral college, the U.S. Senate, and political geography might take issue.  There can be—and currently are—stark differences between popular votes and political representation at the federal level.


[1]  In his recent article, Schlunk presents examples using discount rates ranging from 8 to 10 percent—still too high for higher education earnings premiums, but progress from his earlier article.  Nevertheless, Schlunk references his earlier claims regarding 30 percent discount rates and argues that 8 to 10 percent discount rates are “modest” and even “indefensibly low.” He never discloses that these “indefensibly low” rates are extremely high compared to those used in the established labor economics literature and the actual real (net-inflation) cost of student loan financing.

[2]  The cost of equity financing is usually much higher than the weighted average cost of capital.  Because P.E. transactions (and individual investments in higher education) are mostly debt-financed, the cost of debt is far closer to WACC than the cost of equity.  Moreover, Schlunk’s claim that higher education is undiversified (and therefore risky and deserving of a high discount rate) is implausible in the context of a large university, donor, or government funder.

Posted by Michael Simkovic on August 21, 2017 in Guest Blogger: Michael Simkovic, Legal Profession, Ludicrous Hyperbole Watch, Of Academic Interest, Religion, Science, Student Advice | Permalink

August 15, 2017

Charlotte Law School officially closes

Local news item here.  We've now seen three law schools close:  in addition to Charlotte, also Whittier and Indiana Tech, all victims of the collapse in applications to law schools, which occurred in the wake of publicity about the recession in the market for new lawyers post-2008.  Back in 2013, I guesstimated we might see up to 10 law schools close,and I still think that's possible.  Of course, a sudden change to student loan rules could make that guesstimate look way too conservative, and it's hard to predict what Trump/DeVos will do on that front.  But barring that, I doubt we'll see more than ten law schools close, and almost all will be younger and/or for-profit institutions.

Posted by Brian Leiter on August 15, 2017 in Legal Profession, Of Academic Interest | Permalink

August 14, 2017

Law schools ranked by American Academy of Arts & Sciences membership, 2017-18


                                                                       August 2017

The American Academy of Arts & Sciences each year elects members based on their contributions to scholarship, the arts, education, business, or public affairs. In reality, the Academy tends to be a bit “chummy”—schools already “rich” with members get “richer,” not always on the merits—though the sins tend to be of omission rather than inclusion.  (See this earlier post. Ironically, the earlier prejudice against Legal Realists has not carried over to Critical Legal Studies faculty.)  Faculty also tend to be elected later in their careers (though, on average, female faculty are elected at younger ages than male faculty in the last generation) and untenured faculty are never elected. 


With those caveats in mind, here are the ten law schools with the highest percentage of faculty elected to one of the scholarly sections of the American Academy of Arts & Sciences (excluding untenured faculty from the count for purposes of calculating the percentage). As you will see from the lists, below, total membership drops off rather quickly.  For purposes of this study, “faculty” means faculty who are wholly devoted to teaching and scholarship, even if they do so at more than one school, but only if they hold tenure in the Law School.  (Lists aim to be current for faculty affiliations come fall 2017.)  These criteria have the effect of excluding distinguished judges who still do some teaching (e.g., Frank Easterbrook, Richard Posner, and Diane Wood at Chicago, or Guido Calabresi at Yale), as well as law faculty elected in non-scholarly sections of the American Academy, like educational administration (e.g., John Sexton at NYU or Mark Yudof at Berkeley [though he is now emeritus]). 



Percentage of Senior Faculty Elected to AAAS

Percent of Elected Faculty Over 70 in 2017


Yale Law School




Harvard Law School




University of Chicago Law School




New York University School of Law




Columbia Law School




Stanford Law School




University of California, Berkeley School of Law




University of Michigan Law School




University of Virginia School of Law




Duke University School of Law




Runners-up for the top ten




Georgetown University Law Center




Northwestern University Pritzker School of Law




University of Pennsylvania Law School




Below is a list of the non-emeritus teaching faculty from each school ranked above who are elected to the Law Section of the American Academy of Arts & Sciences. Faculty 70 or older (in the year 2017) are marked with an *.  Those marked with an # were elected in a scholarly field other than Law.


Yale Law School: *Bruce Ackerman, Akhil Amar, Ian Ayres, Jack M. Balkin, R. Lea Brilmayer, Stephen Carter, William Eskridge, Heather Gerken, *Henry Hansmann, Harold Koh, Christine Jolls, Dan Kahan, *Anthony Kronman, *Robert C. Post, *George Priest, Judith Resnik, Roberta Romano, *Alan Schwartz, Reva Siegel, James Whitman, John Fabian Witt.

Harvard Law School: Lucian Bebchuk, *Robert Clark, Noah Feldman Richard Fallon, *Charles Fried, *Mary Ann Glendon, Jack L. Goldsmith III, Vicki Jackson, Randall Kennedy, Louis Kaplow, Michael Klarman, Lawrence Lessig, John Manning, Martha Minow, *Robert Mnookin, Gerald Neuman, #Annette Gordon Reed, Mark Roe, *Steven Shavell, Cass Sunstein, *Laurence Tribe, *Mark V. Tushnet, *Roberto Unger, Adrian Vermeule, David Wilkins, Jonathan Zittrain.

University of Chicago Law School:  Douglas G. Baird, Tom Ginsburg, *R.H. Helmholz, Saul Levmore, #*Martha C. Nussbaum, Eric A. Posner, *Geoffrey R. Stone, David A. Strauss, David Weisbach.

New York University School of Law:  *Jerome Cohen, *Richard Epstein, #*John Ferejohn, David Garland, Samuel Issacharoff, Marcel Kahan, Lewis Kornhauser, *Sylvia Law, Daryl Levinson, Geoffrey Miller, Trevor Morrison, *Burt Neuborne, Richard H. Pildes, Richard Revesz, *Daniel Rubinfeld, Bryan Stevenson, *Richard B. Stewart, Jeremy Waldron, Joseph Weiler.

Columbia Law School: *Vincent Blasi, Philip C. Bobbitt, *John Coffee, #*Robert Ferguson, *George Fletcher, *Ronald Gilson, Jane Ginsburg, *Michael Graetz, *Kent Greenawalt, Phillip Hamburger, Thomas W. Merrill, *Henry Monaghan, *Joseph Raz, *Robert Scott, *Michael Sovern, *Peter Strauss, Tim Wu.

Stanford Law School: John J. Donohue III, *Lawrence Friedman, *Deborah Hensler, Pamela Karlan, Mark Kelman, M. Elizabeth Magill, Michael McConnell, Deborah Rhode, George Triantis

University of California, Berkeley School of Law:  Erwin Chemerinsky, *Robert Cooter, Christopher F. Edley, Jr., Daniel Farber, Pamela Samuelson, *Franklin Zimring.

University of Michigan Law School:  #*Phoebe Ellsworth, *Bruce Frier, *Catharine MacKinnon, *Donald H. Regan, #Rebecca Scott.

University of Virginia School of Law:  *Kenneth S. Abraham, John C. Jeffries, Jr., Douglas Laycock, Paul G. Mahoney, #*John Monahan, *Frederick Schauer, *G. Edward White.

Duke University School of Law:  #Jack Knight, David F. Levi, #Mathew McCubbins

Georgetown University Law Center:  David Luban, *Louis Michael Seidman, Robin West.

Northwestern University Pritzker School of Law: Bernard Black, Shari Seidman Diamond

University of Pennsylvania Law School:  Herbert Hovenkamp, #Beth Simmons


Other law school faculties with non-emeritus teaching faculty elected to the AAAS:


University of Texas School of Law:  *Sanford Levinson

University of California, Los Angeles School of Law:  Seana Shiffrin

University of Southern California Gould School of Law:  #*Gary Watson

Washington University School of Law:  #Lee Epstein

University of Arizona College of Law:  *Carol Rose

Tulane University Law School:  *James Gordley

Posted by Brian Leiter on August 14, 2017 in Faculty News | Permalink

August 9, 2017

Lateral hires with tenure or on tenure-track, 2017-18

These are non-clinical appointments that will take effect in 2018 (except where noted); I will move the list to the front at various intervals as new additions come in.   (Recent additions are in bold.)  Last year's list is here.


 *Richard Albert (constitutional law, comparative constitutional law) from Boston College to the University of Texas, Austin (effective January 2018).


 *Binyamin Blum (legal history, evidence, criminal procedure) from Hebrew University, Jerusalem to the University of California Hastings (starting in Spring 2018) (untenured lateral). 


*William Boyd (environmental law, energy law) from the University of Colorado, Boulder to the University of California, Los Angeles (effective 2018-19).


 *Orin Kerr (criminal procedure, computer crime law) from George Washington University to the University of Southern California (effective January 2018).  


 *Frank Partnoy (corporate, securities) from the University of San Diego to the University of California, Berkeley (effective 2018-19).


*Rose Cuison Villazor (immigration law, equal protection, critical race theory) from the University of California, Davis to Rutgers University (for 2018-19). 

Posted by Brian Leiter on August 9, 2017 in Faculty News | Permalink

August 3, 2017

Bad behavior by the ABA Legal Education Council

Jerry Organ (St. Thomas) has the details.

UPDATE:  At least one of the changes--namely, to stop stigmatizing law-school funded positions--probably makes sense.  Here are comments that were forwarded to me that make the case aptly:

The goal of employment reporting is to provide accurate information, including to prospective students and the general public.   All who are employed by the ABA’s definition (full-time at a salary of at least $40,000) should be counted as employed, regardless of the source of funding.   To not count graduates on school-funded fellowships as employed (or to treat them differently) presents an inaccurate picture of a law school’s actual employment numbers.   I, of course, know that there was a time when some law schools tried to game the rankings by employing students at a very low salary.  But the ABA changed its definition to address this by requiring a salary of at least $40,000, which is approximately market rate for many public service jobs.  In light of this change in definition, it made total sense for the ABA to revise its reporting form as it did to treat all employment that meets its definition the same regardless of the source of funding.  Graduates who are working full-time as public defenders, as legal service lawyers, in non-profits, and for government agencies should be treated the same as those in private firms, regardless of how their salary is being paid. 

The ABA long has professed an important public service mission, including to help close the justice gap by helping to ensure representation for those who otherwise cannot afford it.   In light of this, it was completely appropriate and necessary for the ABA to change its reporting form as it did.  Treating school-funded positions differently penalizes schools that provide fellowships to students to launch their careers in public service and to help provide representation for those who most need it.  The reality is that school-funded fellowships often are essential for graduates who want to begin a career in public service.  My experience is that these fellowships work exactly as hoped with most of these graduates getting permanent offers at their organization or similar ones.  To pick a single example, Gideon’s Promise is a wonderful program where the law school provides a fellowship for one year for a graduate to work in a public defender office and then is guaranteed a job for the next two years in that office.  I would like to see the ABA encourage law schools to fund such positions, but at the very least the reporting should not penalize law schools that do so or create a disincentive for such funding.  

Posted by Brian Leiter on August 3, 2017 in Legal Profession, Of Academic Interest, Professional Advice | Permalink