Doctors and lawyers

Steven Brill of The American Lawyer and CourtTV fame has a very long story in the new issue of Time on some of the more absurd financial dysfunctions of The Best Health Care System in the World(tm). In short, TBHCSITW has managed to do to society at large approximately what law schools have done to their students:

When we debate health care policy, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?

This is same question that ought to be asked of the many law school apologists who treat the increase in the cost of legal education as something akin to a law of thermodynamics, as opposed to a fabulously successful exercise in

rent-seeking by people who have captured a regulatory process.

Critiquing that exercise highlights how the law school cartel has managed to do something which has completely eluded the bar as a whole. A question well worth investigating is why the licensed members of The Best Legal System in the World(tm) have, in comparison to their medical brethren, been so unsuccessful at using their own cartel to protect the economic position of lawyers, as opposed to that of law schools.

Consider some numbers:

In 1989, legal services accounted for approximately $157 billion, in 2005 dollars, of US GDP. In 2011 that same figure (again in 2005 dollars) was $156 billion. Over this time GDP increased by 68% in constant dollars, which means that, as a share of the economy, the legal sector shrank by approximately 41% over the past two decades.

Meanwhile law schools have increased graduate output by 24% over this same time frame, while the cost of private law school tuition doubled in real terms, and that of resident public law school tuition increased by a factor of nearly five. In other words, we’ve radically increased both the price and the supply of something (a license to practice law) whose relative economic value has been collapsing.

The situation in the medical profession has been the precise opposite. After medical school admissions

rose rapidly from the mid-1960s through the 1970s, the AMA reacted to warnings that there would soon be a “glut” of doctors by essentially freezing medical school graduate totals for three decades (Medical schools graduated around 16,000 to 17,000 people every year between 1980 and 2008. Finally, in reaction to new warnings that the country is facing a severe shortage of doctors, medical school admissions began to rise again about five years ago).

The most striking contrast between the situation in law and medicine is, that while economic demand for legal services has, relatively speaking, been contracting radically (note to law school administrators: economic demand = people having enough money to pay for something they’re willing to use that money to pay for), that for medical services has gone through the roof. Between 1980 and 2008, the proportion of American GDP devoted to the health care sector increased by an astounding 77.8%.

Now of course doctors only captured part, and perhaps a relatively small part, of that increased demand in the form of their direct compensation. But what the AMA has been remarkably good at ensuring is that, with trivial exceptions, everyone who graduates from medical school gets to be a practicing physician for more or less as long as they want to be. That is, in the context of capitalism’s gusts of creative destruction, an extraordinarily valuable benefit — and it’s why comparisons between the “average” compensation of doctors and lawyers, or, more far more accurately, between graduates of medical schools and law schools, are essentially meaningless.

Here’s Brill’s description of the plight of large numbers of patients within the contemporary American health care system: “They are powerless buyers in a seller’s market where the only sure thing is the profit of the sellers.” That would also make for a good description of large numbers of law students within the contemporary system of legal education. Of course law school apologists would respond that buyers of legal education are not powerless in comparison to, say, buyers of health care who are suffering a medical emergency or from a serious illness. And that’s true — which is precisely why, now that the power of better information has been placed into their hands, applications to law school are collapsing even faster than the economic demand for legal services.

24 comments on this post.
  1. actor212:

    a fabulously successful exercise in rent-seeking by people who have captured a regulatory process.

    Paul, I rarely get to say this, but I could not have said this better myself.

    In healthcare, there’s at least some justifications for price inflation that go beyond profit, which I don’t want to get into in a comment on a blog.

    After all, non-profit hospitals and even teaching hospitals charge exorbitant prices, so we can safely assume not all of the gouging is for lining shareholder profits or endowments.

    But…

  2. jmauro:

    Isn’t the biggest difference is that the people who use law services are the people who pay for law services, unlike medical services where another unconnected third party pays for the services used? This gives the main purchasers of law services an incentive to control costs which isn’t in the medical field.

  3. Monday Night Frotteur:

    Also note that the doctor cartel has successfully duped numerous jurisdictions into passing laws shielding doctors from responsibility for their cock-ups, despite a rather large body of evidence that doing so doesn’t reduce health care costs.

    The ABA sucks.

  4. Just Dropping By:

    Since the ABA shows no willingness to rein in the expansion of law schools, and I’m not optimistic that admissions will drop enough on their own to resolve the problem, I’ve been saying that if the economic viability of the legal profession is going to be salvaged, it’s going to have to be the state bars that do it, most feasibly by ramping up the difficulty of bar exams. If the pass rate for a state bar starts to be noticeably below 50%, that should at least put a significant damper on enthusiasm for applications to same-state law schools.

  5. BigHank53:

    Of course law school apologists would respond that buyers of legal education are not powerless in comparison to, say, buyers of health care who are suffering a medical emergency or from a serious illness.

    That’s true: someone facing insurmountable medical bills can declare bankruptcy. The unemployed (and likely unemployable) law school graduate; not so much.

    Oh, I’m sorry: that disproves the apologists’ point.

  6. Mrs Tilton:

    I could not have said this better myself

    Indeed. Nor could I.

    Campos’s law-school reporting is so damned good that I regard his bizarre fatness hobby-horse as Lincoln regarded Grant’s whiskey-drinking. If the occasional nine-mile-long screed about how there’s no such thing as obesity is what it takes to keep Campos on the law-school beat, then by all means let’s have the occasional nine-mile-long screed.

  7. rea:

    as Lincoln regarded Grant’s whiskey-drinking.

    We need to send a barrel of nine-mile long obsesity screed to some of our other law professors . . .

  8. rea:

    Insurance pays for a lot of this country’s legal services, too.

  9. psh:

    I’ve long been frustrated by the ABA’s incompetence at managing the labor supply as compared to the AMA. But, your fantastic reporting on the law school profiteering scandal has convinced me that something for more sinister than incompetence is at play.

  10. mpowell:

    Excellent point. I don’t know how many people have been comparing the medical and legal professions, but if they are, they’re idiots. Getting into medical school isn’t enough. You have to graduate and you have to get through your residency. But after that, barring malpractice suits, you should be set up for life. That’s a very difficult deal to get anywhere else due to, as you say, capitalism. Even a great job in can turn sour over a long career if in the general course of things, demand for the products of a particularly industry drop (or the industry becomes so efficient that total revenues decline).

    On a side note, I’m not sure why we as a society stood by and let the AMA freeze med school positions for so long. It was like we let someone take a child hostage, but it took 30 years for them to do it. Just ridiculous.

  11. Snarki, child of Loki:

    The people who hire lawyers for corporations (corporate execs) do not foot the bill, either, since they are rarely majority shareholders.

    Small, family-owned companies and individuals are a different matter, of course, but they also get reamed by health insurers as well.

  12. L2P:

    Less true than you’d think.

    Big firm lawyers are paid by corporations that have a limited incentive to cut costs. The incentive of corporate counsel is to “get the best” and pay whatever it costs to do that, because if you lose (or at least don’t put up a massively good fight) you look like an idiot. There’s little incentive for corporate counsel to get a slightly less expensive but probably just as competent attorney. As they say, no one ever got fired for hiring Jones Day.

    And then a lot of litigation is insurance defense. Although insurers scrutinizes bills closely, the attorneys have a conflict and must provide the work their clients want and so there’s a limit to how much bills can lower. There’s a lot of “low hourly, high hours” billing here.

    There’s other issues, too, but with lawyers it’s generally low overall demand, not careful scrutiny of bills that lowers overall legal fees.

  13. Hanspeter:

    There was a NYTimes op ed last week basically saying that law school graduates needed a residency training period. If I remember correctly, it actually said they should be paid positions, rather than the usual ‘work for free for poor people’ idea frequently floated around.

    Is that actually a feasible idea, or would it just delay by a few years the time at which lawyers find themselves unable to get a permanent paid position?

  14. Law Spider:

    Which is, frankly, the worst of all possible worlds. 98% of prospective law students are dead-certain that they are among the top-half of those that go to law school (or, at least, their law school). If we try to solve the problem with bar passage, we’re letting them rack up 3 years of overly-priced law school debt under that delusion.

    This is particularly true in states — like, say, NY — with their share of third- and fourth-tier law schools AND who pull a lot of high quality bar takers from out of state. Law school applicants won’t even come close to recognizing the truly limited chance of successful bar passage. (Although presumably they might if their law schools were to post accurate bar passage rates for their own graduates. I’m sure that, when the chips/rates are down, we can count on administrative honesty for that.)

  15. Amanda in the South Bay:

    Even the largest states have a handful of medical schools-just considering Northern California, there are a shitload more law schools than medical schools. I’d think that medicine needs what the legal profession has now-a glut of doctors produced by a lot of medical schools.

  16. Bill Altreuter:

    I guess finding a cure for the problem depends on what you think the problem is. If you think the problem is that there are too many lawyers, then yes– adjusting the pass rate might help. According to the New York Board of Law Examiners, in 2012 the overall bar exam pass rates were 76% for first-time takers and 85% for graduates of New York’s 15 law schools. (For the July 2011 administration of the exam,the overall pass rates were 78% for first-time takers and 86% for graduates of New York’s 15 law schools.) What do the people who do not pass do? Most re-take the test. Eventually people who do not pass give up. Those people occupy the worst of all possible worlds: they have non-dischargable debt for an education that they cannot use. But is their situation so different from that of someone who passes the bar but can’t find a job that requires a J.D.? I’m not really seeing the distinction. Both have spent large for an unusable credential, having been induced to do so by a sort of consumer fraud perpetrated by the legal education system. That, to me, is the problem.

    Let’s go back to the numbers I cite above. The figure that most people skimmed over was probably “15″– the number of law schools in New York State. Since New York is a pretty desirable place to practice law it is, overall, a net importer of lawyers, but for some reason there are still 15 law schools here. How can that be justified? (Florida has 12. Massachusetts has 9. Texas has 9. Who knows how many California has- it depends on how you count.)

    I’ve had occasion to speak with someone on the ABA Law School Accreditation Committee, and it is pretty plain that the ABA has no intention of addressing this situation. Since it is, at its root, an education crisis, it falls to educators to do something. Responsible college professors actively discourage students from pursuing graduate degrees that are not wholly or substantially scholarship-funded. Students who can’t gain admission to law schools which will make finding a job a possibility need to be told: Don’t Go. The only way to rid ourselves of the institutions that are exploiting students is to starve them.

  17. Bill Altreuter:

    Poor people are not underserved by the legal profession. Neither are the rich and powerful. Actually, nobody is. The middle class pretty much gets all the lawyerin’ it needs too. Think about it: What do most people need a lawyer for? A simple will? Cheap. It’s a loss leader for most lawyers. House closing? Many if not most people use the bank’s lawyer, and even if you don’t, it is a cost that is more or less built into the transaction. Workers Comp or personal injury matters? Statutory fees or contingency.

    Actually, that’s the problem. The number of available legal hours in most communities far exceeds the demand for those hours.

  18. socraticsilence:

    The problem is that law school is seen as a logical extension of a liberal arts education- hell i’m weighing between it and grad school despite being well informed of the situation (it actually may be worth it at a small handful of state schools outside the top tier if you qualify for in state tuition– say Montana where tution is well under 15k a year) unfortunately for a number of professional level liberal arts jobs post-B.A. education is basically a requirement (excepting strong prior experience which given the at least as problematic internship requirements and the glut of more experienced boomers is nearly insurmountable for most people).

    Hell STEM graduates face a similar glut at least people looking at law school are starting to see the trap it represents to many.

  19. DocAmazing:

    after that, barring malpractice suits, you should be set up for life

    Well, apart from having to maintain board certification (passing a pretty non-trivial set of tests every seven to ten years), having to post twenty-five to a hundred hours of continuing education a year (without which you stand to lose your license), and fending of challenges to your license (which can come from any direction–if your local we’re-cutting-services-to-your-patients-and-screw-the-community hospital chain decides that you’ve mouthed off to the media and the city government more than they’d like, they can initiate those challenges with the state board), then yeah, it’s a lifetime gig.

    So what keeps attorneys from practicing all of their lives?

  20. Breadbaker:

    Since 2008, I’ve told every person, without exception, who has asked me, “don’t go to law school. There are too many lawyers, it’s bad value for money and there are better things you can do with your skills.” Pretty much none of them have listened to me.

    I haven’t told anyone not to go to the doctor, however.

  21. ddt:

    You know, I’ve been wondering about something similar, but for business schools. We’ve seen the cost of and enrollment in go up in top-ranked schools, as well as a profusion of for-profit and community MBA programs. (And I freely admit that my skepticism about the whole MBA thing is colored by my anecdotal, but widespread, negative impressions of B-school students.)

    Obviously we can’t make a direct quantitative comparison to Paul’s examples of medical and legal services, especially in comparison to GDP. What could we replace “medical services” and “legal services” with, in order to try to track the value/return/etc. of business schools in context?

    (Another issue I can see is lumpiness of data: my sense is that if we measure by startup capital raised or employees hired, for example, we’d see clusters and increases around Stanford and Harvard and NYU, plus temporal bumps around bubbles.)

  22. Aaron:

    If you’re talking about the ones who end up in partnerships at larger state and regional firms? Nothing.

    If you’re talking about the rest, the need to make a better living.

    By the way, most states require continuing legal education for lawyers to remain members of the bar, every state has a grievance procedure that allows anybody, for any reason, to try to take away a lawyer’s license….

  23. Aaron:

    The idea that it be paid, I suppose, is to try to avoid what has happened in countries that have similar “articling” requirements but no requirement of pay – a lot of lawyers competing for an inadequate number of positions, where they may have to work a year or two without pay in order to get a full law license.

    I’m not seeing how requiring the positions to be paid is going to make a significant difference – if anything, it seems that it would create a downward pressure on salaries for new lawyers. After all, if they’re not fully licensed, they’re not able to perform all of the tasks that a new lawyer can presently perform, but they have even fewer alternatives to taking a low-paid job with ridiculous hours and bad working conditions.

  24. Aaron:

    Perhaps you’re reading different essays than I am, as I recall Campos as primarily arguing that the definition of “obesity” tends to be based upon cultural ideals and assumptions rather than upon medical data (just as we see “thin = healthy” despite the fact that on the whole being significantly underweight poses more serious and imminent medical consequences than being significantly overweight), that we have strong data indicating that few people are capable of achieving and maintaining long-term weight loss, and that as a result we end up shaming and stigmatizing people based upon factors that may have little bearing on their health and are unlikely to be changed by the finger-wagging, rather than encouraging healthier lifestyles across-the-board.

    Got a link?

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