September 08, 2011
ScamLaw: The Role of Barriers to Entry
Posted by Brett McDonnell

Campos and the burgeoning field of law scam blogs have brought needed attention to a big problem:  law schools now cost way too much for the necessary debt to make sense for many of their graduates.  What can we do about it?

I'm somewhat skeptical about how far the fraud claims explain the problem.  Some schools have lied, most have been at least somewhat misleading, and all have not told the full truth.  Efforts like the Law School Transparency Project should help change that, and that's good.  But are misleading figures which suggest the vast majority of grads get jobs, without mentioning how lousy and/or temporary many of those jobs are, really the heart of the problem?  Would a reasonable person really take on $150,000 in debt based on those figures, without asking for more detail about the nature of those jobs, including the median pay levels (and perhaps further statistics on the distribution of pay) at various stages after law school?  Information about the highly checkered nature of legal employment has been widely available outside law school web sites for a long time--a little bit of googling would bring it up.  Even assuming false or misleading disclosure, is there actual and reasonable reliance here?

I suspect that a deeper problem is a lot of pretty boundedly rational decisionmaking by prospective law students.  People either did too little due diligence, or they assumed that they would be in the top of their class and do OK.  I'm from Lake Wobegon country, and even here our students can't all be above average.  But if that's right, it makes the disclosure question hard.  What should disclosure look like for persons likely to mis-use the information?  Perhaps that means we have a stronger obligation to make clear that many graduates are going to struggle at current tuition levels.  Our FWIP speaker here today is Oren Bar-Gill, one of the leading thinkers on disclosure in markets with boundedly rational consumers.  The problem is hard, but if people like me back more clear and directed disclosure by banks selling credit cards, then we should probably want to see such disclosure by our own employers.

Although disclosure is an issue and changes should be made, I think all the attention to that is drawing focus away from elements that matter more.  Both law and law schools are badly over-regulated markets, and those regulations are leading to distortions.  The most fundamental is the barrier to entry created by rules on the unauthorized practice of law.  Combined with the rule in most states that you must have a law degree to become authorized to practice, this creates an inflated demand for law schools.  Many lesser law schools survive and prosper because their students need that degree in order to be allowed to practice law.  Take that barrier to entry away, and the demand for legal education should drop significantly, leading to a drop in prices, at least in the lower tier schools.

Barriers to entry in law have much worse social consequences than this effect on the law school market--see this article in the Economist, describing this book.  Doing away with those barriers would thus accomplish multiple goods.  It is, alas, incredibly unlikely to happen.  But it is worth repeating periodically that it should.

The biggest problem that ScamLaw identifies about which something might actually be done is the extremely high cost of legal education, combined with too little value created by that education.  This has many causes, not the least of which is over-regulation of law schools by the ABA and AALS, as Larry Ribstein suggests in his excellent post on ScamLaw.  But that's a big topic and this post is already too long, so I will save for a second post my thoughts on ways we can reduce costs.

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