Monday, August 21, 2017

Should the government raid university endowments? (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 critiques 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.  

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

Tuesday, 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.

August 15, 2017 in Legal Profession, Of Academic Interest | Permalink

Monday, August 14, 2017

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

             FACULTY QUALITY BASED ON MEMBERSHIP IN THE AMERICAN ACADEMY OF ARTS & SCIENCES, 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]). 

Rank

School

Percentage of Senior Faculty Elected to AAAS

Percent of Elected Faculty Over 70 in 2017

1

Yale Law School

46%

29%

2

Harvard Law School

30%

31%

 

University of Chicago Law School

30%

33%

4

New York University School of Law

23%

32%

 

Columbia Law School

23%

71%

6

Stanford Law School

18%

22%

7

University of California, Berkeley School of Law

12%

33%

8

University of Michigan Law School

11%

80%

 

University of Virginia School of Law

11%

57%

10

Duke University School of Law

  8%

0%

 

Runners-up for the top ten

 

 

 

Georgetown University Law Center

  6%

33%

 

Northwestern University Pritzker School of Law

  6%

0%

 

University of Pennsylvania Law School

  5%

0%

 

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.

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August 14, 2017 in Faculty News | Permalink

Thursday, 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.  

August 3, 2017 in Legal Profession, Of Academic Interest, Professional Advice | Permalink

Monday, July 31, 2017

Focus group of California lawyers defends tight restrictions on entry into the legal profession (Michael Simkovic)

California is an extreme outlier in the extent to which it restricts entry into the legal profession compared to other U.S. jurisdictions.  Two examples of this include an unusually high minimum cut score on the bar exam and a refusal without exception to permit experienced licensed attorneys from other jurisdictions to be admitted without re-examination.

California lawyers are relatively highly paid, and relatively few in number considering the size of the workforce in California.  Restrictions on entry into the profession may help maintain this status quo.  There are serious questions about whether this protects consumers, or is economic protectionism.  Economic protectionism could benefit California lawyers, but it would likely also harm consumers of legal services by making legal services less available, more expensive and perhaps lower in quality because of reduced competition.  Protectionism would also reduce economic opportunity for those denied the option of practicing law in California, much as immigration restrictions deny economic opportunity to those excluded from high-income countries.

The Supreme Court of California, concerned about the anti-trust implications of a licensed profession establishing criteria for entry, instructed the California State Bar to prepare recommendations on revising the California bar cut score.

Stephen Diamond reports that the California State Bar recommended that its bar examination should either stay the same or be made even harder.  

The California Bar arrived at this conclusion by asking a panel of California lawyers how hard the bar exam should be.  To be more specific, panelists read essays, categorized them into good, medium and bad piles, and, with the assistance of a psychologist who specializes in standardized testing, used this categorization to back-out an extremely high recommended bar passage score.  

Finding that people with high multiple choice scores also tend to write better essays is about as surprising as finding that cars that Consumer Reports rates highly are also often highly rated by J.D. Power.  It's also about as relevant to the policy decision facing the California Supreme Court about minimum competence to practice law.

The relevant question for restricting entry into the legal profession is not whether good (and presumably expensive) lawyers are better than mediocre (and presumably more affordable) lawyers.  Rather, the relevant question is when consumers should be able to decide for themselves whether to spend more for higher quality services or to save money and accept services of lower quality.  Most people will agree that a new Lexus is likely a better, more reliable and safer car than a similar-sized used Toyota.  But this difference in quality does not mean that the government should banish used Toyotas from the roads and permit to drive only those who are willing and able to buy a new Lexus. 

Is there evidence that a bar examinee who would be permitted to practice law in Washington D.C. or New York or Boston or Chicago, but not in California, would routinely make such a mess of clients' affairs that California clients should not even have the option to hire such a lawyer?

Is there evidence that consumers of legal services cannot tell the difference between a good lawyer and a dangerously bad one?  

If these problems exist, could they be addressed by simply requiring lawyers to disclose information to prospective clients that would enable those clients to judge lawyer quality for themselves?  

The California Bar has not yet seriously addressed these questions in arriving at its recommendations.

The California Bar also reported that other states have sometimes recommended increases or decreases to their own bar examination cut score.  But these states are almost all starting with much lower bar cut scores than California's baseline.  It appears that few if any other states recommended bar examination cut scores as high as California's.

July 31, 2017 in Guest Blogger: Michael Simkovic, Legal Profession, Science, Weblogs | Permalink

Lateral hires with tenure or on tenure-track, 2016-17

MOVING TO FRONT FOR THE LAST TIME--ORIGINALLY POSTED AUGUST 1, 2016

These are non-clinical appointments that will take effect in 2017 (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.

 

*Aviva Abramovsky (commercial law, insurance law, financial regulation, legal ethics) from Syracuse University to the University at Buffalo (to become Dean).

 

*Ifeoma Ajunwa (privacy, health law & policy, antidiscrimination law) from the University of District Columbia Clarke School of Law to Cornell University Industrial and Labor Relations (with a courtesy appointment in law as well) (untenured lateral).

 

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

 

*Erez Aloni (family law, contracts, law & sexuality) from Whittier Law School to Allard School of Law at the University of British Columbia (untenured lateral). 

 

*Sahar Aziz (national security law, antidiscrimination law, Middle East law) from Texas A&M University to Rutgers University.

 

*Adam Badawi (contracts, corporate) from Washington University, St. Louis to the University of California, Berkeley.

 

*Shalanda Baker (energy law, international environmental law, administrative law) from the University of Hawaii to Northeastern University.

 

*Angela Banks (immigration law) from the College of William & Mary to Arizona State University.

 

*Natalie Banta (property, trusts & estates, tax) from Valparaiso University to Drake University (untenured lateral).

 

*Richard Bierschbach (criminal law & procedure) from Cardozo Law School/Yeshiva University to Wayne State University (to become Dean).

 

*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).

 

*Richard R.W. Brooks (contracts, business organizations, law & economics, law & social norms) from Columbia University to New York University.

 

*Alfred Brophy (legal history, trusts & estates) from the University of North Carolina, Chapel Hill (back after nine years) to the University of Alabama.

 

*Eleanor Brown (property, immigration and migration law, law & development) from George Washington University to Pennsylvania State University, University Park. 

 

*Christopher Bruner (corporate law, securities regulation) from Washington & Lee University to the University of Georgia.

 

*Marcilynn A. Burke (property, land use, natural resources) from the University of Houston to the University of Oregon (to become Dean).

 

*Megan Carpenter (intellectual property) from Texas A&M University to the University of New Hampshire (to become Dean).

 

*Erwin Chemerinsky (constitutional law, civil procedure) from the University of California, Irvine to the University of California, Berkeley (to become Dean).

 

*Nicolas Cornell (contracts, law & philosophy) from the Wharton School at the University of Pennsylvania to the University of Michigan (law) (untenured lateral).

 

*Sharon Davies (criminal law & procedure) from Ohio State University to Spelman College (to become Provost).

 

*Darby Dickerson (higher education law & policy, litigation ethics) from Texas Tech University (where she is currently Dean) to John Marshall Law School, Chicago (to become Dean).

 

*Ben Edwards (corporate law, securities regulation, consumer financial protection) from Barry University to the University of Nevada, Las Vegas (untenured lateral).

 

*Tonya Evans (intellectual property, entertainment law, trusts & estates) from Widener University Commonwealth to the University of New Hampshire.

 

*Catherine Fisk (labor & employment law, intellectual property, legal history, civil rights) from the University of California, Irvine to the University of California, Berkeley.

 

*Victor Flatt (environmental law, energy law) from the University of North Carolina, Chapel Hill (back, after eight years) to the University of Houston.

 

*Sheila Foster (property, land use, environmental law & policy, local government) from Fordham University to Georgetown University (joint with Public Policy).

 

*Eric Franklin (corporate, contracts, economic & community development clinic) from the University of Nevada, Las Vegas to the University of Tennessee, Knoxville (untenured latereal).

 

*Brett Frischmann (intellectual property, Cyberlaw) from Cardozo Law School/Yeshiva University to Villanova University.

 

*David Gamage (tax) from the University of California, Berkeley to Indiana University, Bloomington.

 

*Rachel Godsil (property, civil rights) from Seton Hall University to Rutgers University.

 

*Erica Goldberg (torts, criminal procedure, insurance law) from Ohio Northern University to the University of Dayton (untenured lateral).

 

*Sarah Haan (corporate) from the University of Idaho to Washington & Lee University.

 

*Kevin Haeberle (corporate law, securities regulation) from University of South Carolina to the College of William & Mary (untenured lateral)

 

*Sam Halabi (health law) from the University of Tulsa to the University of Missouri, Columbia.

 

*Woodrow Hartzog (privacy law, media law, Cyberlaw, intellectual property) from Cumberland School of Law, Samford University to Northeastern University.

 

*David Hasen (tax) from the University of Colorado, Boulder to the University of Florida, Gainesville.

 

*Allison Hoffman (health law & policy) from the University of California, Los Angeles to the University of Pennsylvania.

 

*David Hoffman (contracts, law & psychology) from Temple University to the University of Pennsylvania.

 

*Ryan Holte (intellectual property, patents) from Southern Illinois University to the University of Akron.

 

*Herbert Hovenkamp (antitrust, legal history) from the University of Iowa to the University of Pennsylvania.

 

*Nicole Huberfeld (health law, constitutional law) from the University of Kentucky to the School of Public Health, Boston University.

 

*Blake Hudson (environmental law, natural resources, land use) from Louisiana State University to the University of Houston.

 

*Lolita Buckner Inniss (property, legal history) from Cleveland-Marshall College of Law to Southern Methodist University.

 

*Margot Kaminski (law & technology, civil liberties, privacy law) from Ohio State University to University of Colorado, Boulder (untenured lateral).

 

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

 

*Kurt Lash (constitutional law) from the University of Illinois to the University of Richmond.

 

*Yoon-Ho Alex Lee (securities regulation, corporate, administrative law, antitrust, law & economics, consumer protection law) from the University of Southern California to Northwestern University.

 

*Lyrissa Barnett Lidsky (torts, First Amendment) from the University of Florida to the University of Missouri, Columbia (to become Dean).

 

*Dayna Matthew (health law) from the University of Colorado, Boulder to the University of Virginia.

 

*Pamela Metzger (criminal law & procedure) from Tulane University to Southern Methodist University.

 

*Paul Miller (fiduciary law, private law theory) from McGill University to the University of Notre Dame.

 

*Nicholas A. Mirkay, III (tax) from Creighton University to the University of Hawaii.

 

*Samuel Moyn (legal history, human rights) from Harvard University to Yale University.

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July 31, 2017 in Faculty News | Permalink

Monday, July 24, 2017

How unemployment at graduation affects lawyer earnings over time

More factual analysis from McIntyre & Simkovic, forthcoming in Journal of Empirical Legal Studies:

We investigate whether economic conditions at labor market entry predict long-term differences in law graduate earnings. We find that unemployment levels at graduation continue to predict law earnings premiums within 4 years after graduation for earners at the high end and middle of the distribution. However, the relation fades as law graduates gain experience and the difference in lifetime earnings is moderate. This suggests that earnings figures from After the JD II and III -- which track law graduates who passed the bar exam in 2000 -- are likely generalizable to other law cohorts because these studies are outside the window when graduation conditions predict differences in subsequent earnings.

 

Outcomes data available prior to matriculation do not predict unemployment or starting salaries at graduation. Earnings premiums are not predicted by BLS projected job openings.

 

While changes in cohort size predict changes in the percent of law graduates practicing law, we find little evidence that changes in cohort size predict changes in earnings. This suggests that law graduates who switch to other occupations when law cohort sizes increase are not hurt financially by larger cohorts.

 

For medium to high earning graduates, successfully timing law school predicts a higher value of a law degree ex-post, but simulations show that no strategy for ex-ante timing is readily available.

 

July 24, 2017 in Legal Profession, Of Academic Interest | Permalink

Tuesday, July 18, 2017

June LSAT takers up nearly 20% last month compared to 2016

Is California’s bar examination minimum passing score anti-competitive? (Michael Simkovic)

Occupational licensing regimes can help markets function when those markets suffer from what Economist George Akerlof coined a “lemons” problem.  In a lemons market, it is too costly or difficult for consumers to distinguish goods or services of acceptable quality from those that are close to worthless or even harmful.  Licensing regimes can help solve this problem by assuring consumers of a minimal baseline level of quality.  Effectively, licensing removes the bottom of the market, increasing quality, consumer confidence, volume, and price.

But economists worry that licensing regimes could be abused.  For example, if members of a licensed occupation were to seize control of licensing, they might set unnecessarily high barriers to entry for their industry, above what is optimal for consumer protection.  This could create an artificial shortage, reduce competition, drive up prices and drive down quality of services.  Political leaders also worry that excessive state or local licensing regimes could deprive workers of valuable economic opportunities and reduce their geographic mobility.

The deans of almost all ABA approved California law schools have jointly expressed concerns that California’s minimum passing score (‘cut score’) on the nationally uniform, multiple choice, Multi-State Bar Exam bar examination is excessively high. 

These leaders of legal education note that California has a higher cut score than any state except Delaware, no justification has been provided for this unusually high cut score, and some parts of California may have a shortage of lawyers.  Moreover, although law graduates from California score better on the MBE than the national average, they are less likely to pass the bar exam because of California’s unusually high cut score.  The case for bringing California’s cut score into line with those of other leading legal jurisdictions such as New York has been most forcefully stated by UC-Hastings Dean David Faigman. 

Amid concerns about possible anti-trust lawsuits against the State Bar, the Supreme Court of California has agreed to supervise the state bar of California and may set a lower bar cut score.

High cut scores are not the only signs of possible anti-competitive protectionism in California. California is among the few states that, without exception, forces experienced attorneys licensed in other states to sit for reexamination prior to relicensing. The overwhelming majority of jurisdictions—including New York, Washington D.C., Illinois, Texas, and Massachusetts—permit experienced lawyers who are licensed in another state to obtain a license to practice law on motion, without the need for reexamination.  (Some impose additional requirements, such as graduation from an ABA-approved law school or reciprocity by the state of origin).

Data from the U.S. Bureau of Labor Statistics, Occupational Employment Statistics[i] shows that California lawyers earn more, on average, than lawyers in any jurisdiction except Washington D.C. 


2016 BLS mean lawyer earnings by state

Top paying States for Lawyers:

State

Employment

Employment per thousand jobs

Location quotient[ii]

Hourly mean wage

Annual mean wage 

District of Columbia

31,470

44.81

10.16

$87.89

$182,810

California

76,840

4.81

1.09

$77.89

$162,010

New York

72,760

8.00

1.81

$77.53

$161,260

Massachusetts

17,440

5.04

1.14

$76.33

$158,760

Delaware

2,590

5.87

1.33

$75.77

$157,610

While this may be great for lawyers, it is not necessarily an unmitigated good.  It means that legal services likely cost clients more and may be less widely available. 

Continue reading

July 18, 2017 in Guest Blogger: Michael Simkovic, Legal Profession, Of Academic Interest | Permalink

Monday, July 17, 2017

Some corrected data on trends in law school applications and LSAT scores

Here.  The problem is that the Blog Emperor relies too often on unreliable sources like "Law School Transparency" and the hopeless Matt Leichter.

July 17, 2017 in Legal Profession, Of Academic Interest | Permalink