March 16, 2017
Daniel Hemel and David Herzig argue in the New York Times that a Republican plan to replace a tax penalty paid by the uninsured under the Affordable Care Act with a penalty paid directly to insurance companies after a gap in coverage could thwart Republican efforts to repeal Obamacare using budgetary reconciliation procedures.
March 01, 2017
Daniel Schwarcz (Minnesota) and Colleen Chien (Santa Clara) win American Law Institute Young Scholars Medal (Michael Simkovic)
The press release is here. The award is highly selective. The ALI--publisher of the influential Restatements of Law and co-creator of the Uniform Commercial Code--selects two out of thousands of eligible "young scholars" every two years for work that has the potential to change the law for the better.
Congratulations to Dan and Colleen!
January 19, 2017
Established datasets, proxies, and customized data collection: The case of international LLMs (Michael Simkovic)
How should researchers make tradeoffs between the costs of data collection, the speed of the analysis, the precision of the measurements, reproducibility by other researchers, and broader context about the meaning of the data: how we might compare one group or one course of action to another, how we might understand historical trends, and the like?
Must we always measure the precise group of interest, with zero tolerance for over-inclusion or under-inclusion? Or might one or a series of proxy groups be sufficient, or even preferable for some purposes? What if the proxies have substantial overlap with the groups of interest and biases introduced by use of proxy groups are reasonably well understood? How close must the proxy group be to the group of interest?
These are important questions raised by a group of legal profession researchers which includes several of the principal investigators of the widely used After the JD dataset.
Professors Carole Silver, Ethan Michelson, Robert Nelson, Nancy Reichman, Rebecca Sandefur, and Joyce Sterling (hereinafter, Silver et al.) recently wrote a three-part response (Parts 1, 2, and 3) to my two-part blog post from December about International LLM students who remain in the United States (Part 1) and International LLM students who return to their home countries (Part 2). The bulk of Silver et al.’s critique appears in Part 2 of their post, and focuses mainly on Part 1 of my LLM post.
My post, which I described as “a very preliminarily, quick analysis intended primarily to satisfy my own curiosity” used U.S. Census data from the American Community Survey and two proxy groups for international LLM (“Masters of Law”) graduates to make inferences about the financial benefits of LLM degrees to international students who remain in the U.S. Silver et al. agree with several of the limitations of this analysis that I noted in paragraphs 5 through 8 of Part 1 of my post. They also note that historically, many LLMs have returned to their home countries and argue that the benefits of LLM programs to returning students may be greater than the benefits to those who remain in the United States. (While I am skeptical of this last claim—especially if we focus exclusively on pecuniary benefits—it seems likely that both groups benefit).
Silver et al. have also helpfully made several additional points about limitations in my proxy approach and ways in which proxies could over-count or under-count foreign LLMs. The most important of these limitations can be addressed with a few modifications to the LLM proxy group approach. Those interested in the technical details are encouraged to read footnote 1 below.
Returning to broader questions about the use of proxy groups, my view is that proxy groups can be helpful and potentially necessary for certain kinds of analysis.
Suppose that we wish to know the temperature in New York’s Central Park before we take a stroll, but we only have temperature readings for LaGuardia and Newark airport. While neither of those proxies will tell us the precise temperature in Central Park, they will usually be sufficiently close that we can ascertain with a reasonable degree of certainty whether we should bring our winter coats, wear sweaters, or proceed with short sleeves. Indeed, readings from Boston or Philadelphia will probably suffice, particularly if we’re aware of the direction and magnitude of typical temperature differences relative to Central Park.
Should we refuse to venture out until we can obtain a temperature reading from Central Park itself?
January 04, 2017
President-elect Trump intends to nominate Sullivan & Cromwell partner Jay Clayton to head the Securities and Exchange Commission according to reports by the Financial Times and other newspapers. Clayton has extensive expertise in M&A, capital markets, and financial regulation.
Clayton is a graduate of the University of Pennsylvannia Law School, where he taught a class on "M&A Through the Business Cycle" from 2009 to 2015.
A partner in a prominent San-Francisco-Bay-area venture capital firm recently told me, “The tech sector is eating the world. The menu is full of inefficient legacy industries.”
The thesis of USC Professor Gillian Hadfield’s new book, Rules for a Flat World, is that the legal profession should be near the top of the menu. Hadfield argues that law is overly complicated, expensive and inefficient. This is because lawyers have monopolized the practice of law, locking out more efficient, technologically empowered, venture-capital backed competitors. These competitors—software engineers backed by venture capital money, perhaps in cooperation with lawyers and paralegals—could hopefully improve quality, reduce costs, and generally run circles around overly conservative law firms and inefficiently subscale solo practitioners.
This book will engage venture capitalists and entrepreneurs, established legal technology companies, individuals interested in regulation of the legal profession, and more broadly, those who study privatization and deregulation.
She raises important questions about which regulations of the legal profession protect consumers or serve other legitimate public policy goals and which might be merely protectionist. She targets prohibitions on practice of law within a corporation and prohibitions on profit-sharing with non-lawyers. Without such regulations, it would be easier for non-lawyers to invest in and make high level decisions for legal services providers. Non-lawyers might place more trust in technology than lawyers and might be more open to new business models.
Hadfield’s analysis focuses on the aspects of law that are an economic service (she describes it as “economic infrastructure”). Hadfield is primarily focused on commercial and corporate law. Hadfield notes that while criminal law may be more salient in popular culture, since the time of Hammurabi, most law has been about money, property rights, risk allocation, and supporting business activity.
Hadfield argues that if companies such as Westlaw, Lexis and Legal Zoom could hire lawyers to provide customer support directly to end-users, these companies could improve the appeal of their offerings and more easily compete with small and solo-practitioners. Moreover, these companies would have economies of scale and efficiencies that solo practitioners cannot readily match. Because of these efficiencies and expansion of the legal market to under-served populations, lawyers working for incorporated legal services providers would not necessarily earn less than solo practitioners currently earn, although lawyer-employees would have substantially less autonomy than lawyer-owners.
December 30, 2016
December 14, 2016
Republican Tax Plan likely to cause "an explosive rise in federal debt" according to Centrist former Treasury Secretary Lawrence Summers (Michael Simkovic)
Former Secretary of the Treasury Lawrence Summers recently warned that President Elect Donald Trump's proposed tax reform plan "will massively favor the top 1 per cent of income earners, threaten an explosive rise in federal debt, complicate the tax code and do little if anything to spur growth."
Summers served as Secretary of the Treasury during the Clinton Administration, during one of the few periods in the last 4 decades when the Federal Government ran a surplus budget. Summers is a Professor of Economics at Harvard University, served as the President of Harvard University, was the Chief Economist of the World Bank, was the Director of the National Economic Council, and was a managing partner at hedge fund D.E. Shaw.
Summers is widely regarded as data-driven, rigorous, and centrist (Summers has complained about "absurd political correctness" in academe and his potential nomination as Chairman of the Federal Reserve was opposed by Progressive Democrats).
"Unfortunately, neither the Trump plan, nor the one put forward by Paul Ryan, speaker of the House of Representatives, provides for nearly enough base-broadening to finance all the high-end tax cutting they include.
Steven Mnuchin, Treasury secretary-designate, asserts there will be no absolute tax cut for the upper class because deductions would be scaled back. The rub is that totally eliminating all deductions for those with incomes over $1m would not even raise enough revenue to cover reducing their marginal tax rates from 39 to 33 per cent, let alone offset their benefit from huge rate reductions on business and corporate income, and the elimination of estate and gift taxes.
Estimates of the Trump plan suggest that it will raise the average after-tax income of the 0.9 per cent of the population with incomes over $1m by 14 per cent, or more than $215,000. This contrasts with proposed tax cuts for those in the middle of the income distribution of $1,000, or about 2 per cent.
The repeal of estate and gift taxes is especially problematic because it would provide a window for the very rich to use gift and trust structures to ensure that their wealth passes without tax not just to their children but to their grandchildren and great grandchildren, regardless of subsequent legislation. . . .
The envisioned Trump tax cut is about the same size relative to the economy as the 1981 Reagan tax cut. It is worth remembering that Reagan, hardly a fan of reversing course or raising taxes, found it necessary to propose significant tax increases in 1982 and 1984 (the equivalent in today’s economy of $3.5tn over a decade) due to concerns about federal debt.
December 01, 2016
U.S. LLM Programs Probably Benefit International Students (Part 2): Students who return home (Michael Simkovic)
In part 1 of this 2 part post, I noted that U.S. LLM programs may provide substantial financial benefits to students who remain in the United States, even if they do not necessarily pass a U.S. bar exam. But what about the LLM graduates who return to their countries of origin?
While good data is hard to come by, it is easy to imagine how studying U.S. law might benefit lawyers working outside of the United States and hard to imagine how international programs could continue to attract applicants if returning lawyers did not speak favorably of their studies abroad. Indeed, some countries explicitly encourage students to study abroad and return home. U.S. higher educational institutions often have far better resources than those available in international students’ countries of origin.
Many efforts to “harmonize” and “modernize” corporate, commercial, and regulatory law have historically been efforts to adopt a more U.S.-like approach. For example, the Uniform Commercial Code is greatly admired and appreciated by international bankers and lawyers who have grappled with other countries’ fragmented and inconsistent approaches to secured credit. The U.S. Bankruptcy code is thought to be more conducive to entrepreneurship and consumer finance than the approach in many foreign jurisdictions. Many securities are issued under U.S. law. Many international transactions explicitly choose New York law. U.S. anti-trust law can extend to companies based outside of the United States. U.S. tax law helps drive many international transactions.
Derek Muller recently noted evidence suggesting lower first-time bar passage rates for international students taking the bar exam compared to graduates of ABA approved 3-year JD programs. Although his headline is provocative, Muller is careful to avoid overstating the significance of this finding. Lower bar passage rates are expected, considering that for many LLMs, English is a second language, while for most ABA-approved-JD graduates, English is a first language. On the bar exam, LLMs compete without accommodation on a timed exam with a large essay component with students who either speak English as a first language or have had many more years to immerse themselves in the English language. It can take years for immigrants to become roughly substitutable for U.S.-born workers.
But as noted in my previous post, from a consumer protection perspective, the relevant comparison is not U.S.-born-citizens versus immigrants or foreigners. It’s immigrants or foreigners with more U.S. education versus immigrants or foreigners with less U.S. education.
1-year degrees appear to provide benefits. It seems likely that a 3-year degree would provide international students even more benefits than a 1-year degree. But a 3-year degree would also cost more and take more time to complete, and might be unappealing to those planning to return home.
The U.S. has a history of using English-literacy tests to exclude immigrants from Southern and Eastern Europe while permitting immigration from Northern Europe. Today, historians generally view these policies as discriminatory. It would be unfortunate if the ABA were to take a parallel approach today to deny access to U.S. legal education to lawyers from non-common-law countries on ill-considered consumer protection grounds. Many of those international students intend to return home rather than practice law in the United States. Some of those international students may face even lower odds of passing the bar exam in their countries of origin than in the United States, language barriers notwithstanding.
November 29, 2016
U.S. LLM Programs Probably Benefit International Students (Part 1): Students Who Stay in the U.S. (Michael Simkovic)
At a conference I recently attended, some law professors and administrators seemed willing to assume the worst about LLM and international JD programs. They seemed to think that LLM programs provide revenue to law schools but do little to help students. This stoked my curiosity about international law programs. It seems likely, as conference attendees suggested, that LLM admissions are less exclusive than JD admissions at comparable institutions. But lower selectivity does not imply that LLM programs fail to help their students.
Immigrants are generally at a disadvantage relative to those born in the United States because of language, culture, and legal issues. But comparing immigrants to U.S.-born individuals tells us nothing about the benefits of U.S. education for immigrants. Instead, we can either compare immigrants to those from their countries who stay home, or compare immigrants to each other by education level.
Decades of peer reviewed labor economics research indicates that additional education boosts earnings. Moreover, Immigration to the United States can often dramatically boost earnings for immigrants over the long term. Are foreign LLM programs or international JDs exceptions to widely observed trends regarding benefits of education and immigration?
While data is limited, the unsurprising answer appears to be: Probably not.
Using U.S. Census data (ACS), I found (in a very preliminarily, quick analysis intended primarily to satisfy my own curiosity) that an LLM might boost long term annual earnings by as much as $25,000 on average compared to a bachelor’s degree (depending on unobserved selection effects, the causal boost could be lower since these are cross-tabbed means by race sex and education level). The earnings boost from a JD for immigrants might be around two or two and a half times as high as the boost from an LLM.
August 19, 2016
"There's a new book out about the student loan crisis [Student Debt: Rhetoric and Realities of Higher Education], or what author Sandy Baum suggests is a "bogus crisis." Baum, a financial aid expert and senior fellow at the Urban Institute, claims it has been [sensationalized and exaggerated] by the media in search of a spicy story and fueled by politicians pushing "debt free college" proposals. . . . "
"People who earn bachelor's degrees, by and large, do fine.
The problem is that we have a lot of people actually borrowing small amounts of money, going to college, not completing [a degree] or completing credentials that don't have labor market value. They tend to be older. They tend to come from disadvantaged or middle-income families and they're struggling. [But] not because they owe a lot of money. . . .
Its not realistic to say we're going to pay people to go to college [for free]. Someone has to pay. We can have everyone pay much higher taxes. But short of that, it's not clear how we would pay. . . .
There are some people who borrowed under fraudulent, deceptive situations and their debt should be forgiven. There are people for whom education did not work out through no fault of their own and their debt should be forgiven. . . . We don't give people very much advice and guidance about where [and] when to go to college, how to pay for it, what to study. . . .
[[There are facts that] get little or no attention because they don't fit the "crisis" narrative:
- A third of college students who earn a four-year degree graduate with no debt at all. Zero.
- A fourth graduate with debt of no more than $20,000.
- Low-income households hold only 11 percent of all outstanding [student] debt.
- Almost half of the $1.3 trillion in student loan debt is held by 25 percent of graduates who are actually making a pretty high income.]
This is an investment that pays off really well. The median earnings for young bachelor's degree recipients is about $20,000 a year higher than the median earnings for high school graduates.
Student debt is really creating a lot of opportunities for people. People wouldn't be able to go to college otherwise."
Baum notes that many graduates with high debt levels (>$100,000) have advanced degrees, high expected incomes, and low default rates.
"The highest debt levels are for those earning professional degrees . . . Despite high debt levels, default rates among graduate borrowers are very low." However, Baum expresses some concern about those pursuing expensive master's degrees in fields "that rarely lead to the kind of earnings that doctors, lawyers, and MBAs can expect."
Baum's findings are broadly consistent with recent research by Beth Akers and Matthew Chingos, reviewed by David Leonhardt for the New York Times. Akers and Chingos have a new book coming out this fall.