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Time was on his side

[ 61 ] July 26, 2013 |

Mick Jagger is 70 years old today. The only Rolling Stones show I ever went to was at the old Silverdome outside Detroit in 1981. He was 38 then, which at the time seemed way too old for his on-stage persona (The most memorable thing about the evening was that local legend Iggy Pop opened, and was bombarded by various objects thrown from the floor by irate Budweiser-fueled groundlings. He took the assault in good humor, telling the crowd between songs that “we must play until we win you over.”).

A fun if slightly depressing parlor game can be played by noting things such as that the distance between Beggars Banquet and today is the same as that between that album and Warren Harding’s presidency. Jagger was 24 when they recorded this:


[ 7 ] July 26, 2013 |

For interested parties who don’t want to wade through the 300,000 words and 40,000 comments at ITLSS, or the much more concise summary provided by Don’t Go to Law School (Unless), here’s an interview I did with the Denver Post, suitable for the attention span of the video game generation.

Now get off of my lawn.

Only 22 people elect to cash million-dollar admission ticket

[ 43 ] July 26, 2013 |

Here’s a puzzler for econometric analysis: Why are only 22 prospective students scheduled to enroll in Indiana Tech’s inaugural law school class next month, when social science has proven that getting a law degree is equivalent to being handed one million dollars in cash?

Speaking of the Simkovic paper, Matt Leichter makes an intriguing suggestion:

(1) On page 44, it says,

Thus, on average and ignoring obvious behavioral changes, the federal government would hypothetically profit from legal education even if it provided legal education free at the point of service.

This is about the moment that I opened to the possibility that “Economic Value” was a hoax like Alan Sokal’s famous “Transgressing the Boundaries: Toward a Transformative Hermeneutics of Quantum Gravity,” because it’s the exact kind of absurd policy proposal that a satirist would put into an article claiming law school is worth the money. Just hedging my bets. (Please be a hoax. Please be hoax. Please be hoax.)

(2) Otherwise, “Economic Value” is the “Reinhart and Rogoff” of legal education. I’m surprised I haven’t seen the parallel made elsewhere, and we really should have seen it coming. Sure, it’s probably not going to contain any MS Excel errors or strange weightings, but it’s causal theory is equally nonsensical and should not be taken any more seriously than “Growth in a Time of Debt” is taken today.

Leichter’s more polite criticisms are here.

Seriously, is it necessary to point out the logical fallacies and associated pseudo-empirical leaps of faith at the core of these sorts of arguments?

Those holding bachelor’s degrees earn about $2.27 million over their lifetime . . . earn vastly more than counterparts with some college ($1.55 million in lifetime earnings) or a high school diploma ($1.30 million lifetime), indicating that no matter the level of attainment or the field of study, simply earning a four-year degree is often integral to financial success later in life.

“The payoff from getting a college degree is huge and is actually increasing,” says Jamie Merisotis, president and CEO of Lumina Foundation, a nonprofit focused on boosting America’s number of college graduates. “For people wondering [if] a college degree [is] worth it: Not only is it worth it, but the premium is growing.”

Ah yes, the good folks at Lumina want everyone in America to enjoy the extra million dollars a college degree bestows on its owner:

“Lumina Foundation is a conversion foundation created in mid-2000 as USA Group, Inc., the nation’s largest private guarantor and administrator of education loans, sold most of its operating assets to Sallie Mae. Proceeds from the sale established the USA Group Foundation with an endowment of $770M. The Foundation was renamed Lumina Foundation for Education in February, 2001.”

It should be mentioned that with $1.5B in endowment, they give out no scholarships and seem to exist solely to propogate “we need many millions more college graduates” studies, with a particular emphasis on higher matriculation rates from the lower socioeconomic classes. Now, what do the lower classes need to get through college? That’s right: student loans – both private (which Sallie turns into SLABS) and federal (which Sallie still administers and collects).

Funding source: Sallie Mae

Sponsors/operators: Sallie Mae, USA Group [erstwhile SL guarantor that was in danger of losing its non-profit status when Sallie bought its assets and turned it into Lumina]

Public Agenda: double the percentage of college grads in the US, even though college grads have sported 50% un/underemployment for the better part of a decade now.

Other possible agendas: to ensure the financial health of Sallie Mae by decrying our supposed lack of college grads and getting everyone and their dog to enroll in college, especially if they need student loans. There has been a lot of media coverage on the burgeoning student loan crisis: the 1 in 4 in delinquency, with only 1 in 2 in active repayment (per NY Fed Reserve). The law school crisis. The biz school crisis. The humanities grad school crisis. The liberal arts crisis. The supposed STEM shortage. One can go on and on and on. I have collected north of 300 articles, studies, papers, etc on these trends over just the last two years. Lumina, despite being the largest higher ed foundation in the country, is very careful to…. not say anything about these horrendous outcomes. Nope, all that is needed to solve the country’s ills is to double the percentage of college grads, even though we already have twice as many college grads as the country can absorb. Any correlation between this goal and continued prosperity and revenue growth at Sallie is purely coincidental, of course…


The student loan fiasco

[ 96 ] July 25, 2013 |

Last night the Senate passed a bill to re-set student loan rates. The House is expected to accept this “compromise” measure (compromise being a term of art meaning “a GOP-backed measure acceptable to the Obama administration”).

The new deal essentially jacks up student loan rates drastically going forward, but disguises this with what Elizabeth Warren analogizes to an initial credit card teaser rate.

Here’s how it works. Each year, student loan rates will be determined by the following formula:

Subsidized Staffords will be set at the previous year’s 10-year T-bill yield plus 2.05%. (These are the loans that undergraduates can get for the first few thousand of education costs in a particular year).

Unsubsidized Staffords will be at the 10-year rate plus 3.6%. Grad Plus and Parent Plus will be at the 10-year rate plus 4.6%.

Now because treasury yields were at a post-WWII low last year, this formula actually reduces student loan rates slightly for next year. But it raises them, drastically, going forward, assuming (as the CBO projects they will) interest rates will rise toward anything even remotely close to their historical averages.

For example, graduate and professional students would see their loan rates increase above the current 6.8% (Stafford) and 7.9% (Grad PLUS) rates if the yield on the T-bill were to be at the lowest annual rate it hit in any year between 1962 and 2011. If interest rates climb anywhere close to historical averages, the Stafford and Grad PLUS rates will climb to 9.5% and 10.5% respectively, where they’re capped by the bill.

For undergraduates, subsidized Staffords are capped by the bill at a mere 8.25%, but they would hit this astonishing rate even before interest rates got to their 50-year historical average.

In effect, this bill treats federal student lending, even more than it is now, as a multi-billion dollar per year arbitrage opportunity for the government (unlike almost all other debt, student loans aren’t dischargeable in bankruptcy). This is especially true for graduate and professional students, who by 2015 are projected by the CBO to be paying even higher rates than they currently pay. (How does $200,000 in debt at 10% paid back over 25 years sound? If CBO projections regarding interest rates prove correct, that’s what the average law graduate who matriculates four years from now will be taking on).

A failure of the elites

[ 103 ] July 23, 2013 |

Atrios asks below:

Would like your take on the problem with discussions of this sort being (almost) entirely dominated by people who attended relatively elite institutions and therefore have little real understanding of the question actually being asked.

Here’s a passage from a draft article I’m working on, regarding the stigmatization of recent and not so recent law graduates who are unable to become, in Goffman’s terminology, “normals.” The passage is part of a discussion of why legal academia has been so slow to recognize the crisis which has been building in the legal profession, and our own role in it (The second block quote is from a regular LGM commenter): Read more…

How to fix law school

[ 69 ] July 23, 2013 |

Ideas from various observers. Mine:

In real, inflation-adjusted terms, tuition at private American law schools has doubled over the past 20 years, tripled over the past 30, and quadrupled over the past 40. The rate of increase for resident tuition at public law schools has been even steeper.

The result of this trend is that students enrolling in law school this fall will graduate with an average of around $200,000 in educational debt. This debt will carry an interest rate of about 7.5%, which means that typical law graduates will start their legal careers, assuming they have such careers — nearly half of 2012 graduating class did not get jobs requiring law degrees — with an obligation to pay $15,000 per year in interest alone on their debt.

Law graduates are now incurring levels of educational debt that can be serviced only by the salaries paid by the kinds of large law firms featured in Noam Scheiber’s article. Yet only ten percent of current law graduates get such jobs, and, as Scheiber’s article suggests, such firms seem more likely to contract rather than expand in the foreseeable future.

Two aphorisms from economists sum up what’s going on in legal education today: Herb Stein’s observation that, if something cannot go on forever, it will stop, and Michael Hudson’s insight that debts that can’t be repaid, won’t be.

The current price structure of legal education represents a massive market failure. The primary source of that failure is the federal government’s policy of allowing anyone admitted to any law school to borrow the full cost of attendance, including living expenses, to that institution. Incredibly, law schools can charge any price they want, and law students can borrow that amount from taxpayers, subject to no actuarial controls whatsoever.

The cost of law school needs to be reduced to what it was a generation ago. This would happen practically overnight if the federal government put reasonable caps on educational loans. Such caps need to take into account that law graduates are entering a hyper-saturated market, which features approximately one job for every two new lawyers. Around one in every five of those jobs pays more than a mid-five figure salary. Allowing people to borrow $200,000 of taxpayer money to enter such a market is extraordinarily irresponsible.

The end of Big Law?

[ 112 ] July 22, 2013 |

Noam Scheiber has an interesting piece in TNR on the apparently structural changes that continue to wrack the big money tip of the legal services pyramid.

An under-discussed feature of the ongoing economic crisis in legal hiring and the related dysfunctions of the legal education system are the costs, both pecuniary and psychic, of “winning” (at least temporarily) the law school game. Like everything else in the employment market these costs tend to be affected strongly by gender:

As demeaning as life can be for a partner these days, it’s altogether soul-crushing for an associate. One of Mayer Brown’s young attorneys recalled scaling back her hours around the time her first child was born. The new schedule meant getting to the office by 6:30 a.m. so she could leave by 6 p.m., in time to put her daughter to bed. The problem arose when she had to work late, a not infrequent occurrence. “Then you’re in the office from 6:30 a.m. till 1 a.m. It sucks even more,” she says. Periodically, some of the women partners would lead seminars on striking a work-life balance, but she found them of limited use. “The primary talk we would get was: ‘Outsource your life. Your husband can stay at home. Or you can hire a cook, a cleaning staff, and you can [spend time with your kids] on vacations.’ Thanks.”

As somebody once said, getting a big law job (an outcome achieved by around 10% of current law school graduates) is like winning a pie-eating contest where first prize is more pie.

Steve Diamond, academic fraud

[ 39 ] July 20, 2013 |

Updated below

Friend of LGM Steve Diamond has once again turned his attention to our blog:

[Campos] argues in a recent post at the equally notorious website “Lawyers, Guns and Money” which Professor Campos uses as his home base (Guardian journo and Edward Snowden interviewer Glenn Greenwald refers to LGM as a “filthy cesspool” and a “cesspool of unprincipled partisan hackdom”) that the discounted value of a JD at the median is something north of $100,000. He concludes that he has therefore succeeded in “critiquing” the paper by Simkovic and McIntyre.

He has, however, done nothing of the sort.

He has simply done exactly what the paper implies all analysts of the value of a JD should do – apply relevant costs such as potential debt and taxes and subtract those from the expected and discounted future cash flows. Sure enough, even with his inputs (like the implication that students must borrow $200,000 to go to law school) the result Professor Campos comes up with is a NPV of $109,000, i.e., positive . . . So, far from undermining the Million Dollar JD Value paper, Professor Campos simply confirms its fundamental insight: law school is a positive net present value project for the vast majority of law students even when tested by the institution’s leading opponent.

This is completely dishonest and hackish. It’s a grotesque mischaracterization of my critique of the Simkovic and McIntyre paper.

(tl;dr: Even accepting all of their data, methods, and interpretations as sound for the purposes of argument, S&M overstate the net present value of a law degree by nearly ten-fold, since going forward the typical law student will have to invest $311,000 in present dollars to get a $420,000 liftetime return in NPV (minus investment costs) terms. But their data, methods, and interpretations are in fact highly suspect, because in the face of compelling evidence to the contrary they assume no long-term changes in the labor market for law degree holders, they have no data on recent graduates, their sample of law degree holders not practicing law is highly vulnerable to self-selection bias, they must assume correlation equals causation, and they do not stratify their data by type of law school).

Diamond is well aware that the vast majority of readers don’t click through to a linked article, so he’s simply lying about what I have to say about the paper, in the knowledge that most readers will take his word that his characterization is fair.

In one sense Diamond is at the right institution: Santa Clara’s law school has engaged in, even by the abysmal standards of its peers, what certainly appears to be egregiously fraudulent mischaracterization of its graduate employment outcomes, by for example classifying 90% of its vast numbers of unemployed graduates as unemployed by choice. He also likes to out anonymous critics and inappropriately reference their personal lives. His comments in that vein in this thread were so shameless that Dan Filler decided to delete them.

Update: For a sense of what Santa Clara’s $70,000 annual cost of attendance is buying its students, check out this comment regarding what this professor of corporate finance teaches his students about the “fundamental rules of net present value.”

By popular demand

[ 56 ] July 19, 2013 |

Resolved: As of this moment, Mike Trout has the most impressive resume of any 21-year-old major league player ever.


If I had a million dollars — Part III

[ 11 ] July 19, 2013 |

This is the last in a three post series. Earlier installments are here and here.

Perhaps the most central problem with the kind of analysis Simkovic and McIntyre are doing is inherent to any method that uses statistical correlations to try to prove causation. The authors demonstrate that the median law degree holder in their study has a higher lifetime income than the referent group of undergraduate degree holders. As I pointed out in earlier posts, the difference they find is actually fairly small after taking into account taxes and investment costs, and there are various reasons to think these relatively small differences may disappear altogether, or generate a negative present value for law degree holders who received their degrees in the last decade and going forward.

But beyond this, a correlation between higher lifetime earnings, such as they are, and law school attendance does not prove that graduating from law school caused those higher earnings. Perhaps law school graduates have other characteristics that differentiate them from college graduates in general, which accounts for part or all of the earnings gap. For example, law school graduates could, crudely speaking, be smarter, harder working, more ambitious, and more materialistic than college graduates in general. The authors are aware of this possibility, and attempt to control for it, by matching law school graduates with otherwise similar college graduates who don’t go to law school (their method eliminates some of the earnings gap).

Consider a loose analogy: lots of social science research indicates that marriage correlates with all sorts of good outcomes: longer life expectancy, lower rates of chronic disease, higher socio-economic status, lower rates of depression, etc. But it’s far from clear the extent to which, if at all, marriage causes these outcomes, as opposed to correlating with other causal factors that are responsible for both better health, wealth etc., and higher rates of marriage among the healthy and wealthy.

It would be quite reckless, in other words, to get married in order to reap the supposed benefits caused by marriage.

In the case of law school, the fundamental question this sort of analysis faces can be clarified by stating two opposing views in their strong forms:

(1) Graduating from law school increases lifetime earnings relative to otherwise similar college graduates because legal education enhances human capital, by improving people intellectually, emotionally, and ethically, in ways that make them more valuable to employers, or to themselves as self-employers.

(2) Graduating from law school is a social sorting mechanism that enhances earning power, for reasons that have nothing to do with “enhanced human capital” (if anything law school tends to make people dumber than they were before they started), and everything to do with the pernicious effects of empty credentialism and arbitrary barriers to entry.

Now note that both views are perfectly consistent with the conclusion that law school enhances a graduate’s lifetime earnings. The issue, of course — and it is a deeply political and ethical issue — is that law school may “cause” this result in completely different ways. In the first case, law school is adding value in a defensible sense of “value;” in the second case, law school is merely extracting rents.

Finally, perhaps the single biggest weakness in the authors’ analysis is that it does not in any way stratify data in regard to different sorts of law schools. Just as whether getting married is likely to be beneficial to one’s health is far more dependent on whether one is marrying a mature, emotionally stable person who loves his or her work, or an abusive unemployed alcoholic than it is on the generic act of “getting married,” whether law school makes sense as an investment varies just as enormously, depending on the school and its cost.

Under present circumstances, the question of whether or not one should go to “law school” is especially meaningless. There are a handful of law schools at which the answer for most people admitted to them is probably yes. There are far, far more law schools where the answer for most people admitted to them is almost certainly no.

A study that mashes up the extrapolated estimated lifetime earnings of the graduates of a couple of hundred law schools, who graduated from those schools over a 50-year period, then asserts that the statistics generated by this mash up demonstrate that the decision to go to a legal fiction called “law school” will be economically rational for most prospective students going forward, is stretching the predictive power of econometric analysis well past the breaking point.

If I had a million dollars, Part II

[ 10 ] July 19, 2013 |

In an earlier post, I argue that The Economic Value of a Law Degree exaggerates the value of a degree to people enrolling in law school now by using a mean rather than a median figure, by excluding taxes, and most of all by failing to account for the cost of acquiring a degree. I conclude that, even accepting all of the authors’ data and methods as sound, the value of a degree to prospective law students would more accurately be characterized as about $100,000 rather than $1,000,000.

In this post I will critique some of the authors’ data, methods, and the interpretations they draw from them. Read more…

If I had a million dollars

[ 79 ] July 19, 2013 |

The legal internets are atwitter with talk of a new paper which suggests that a law degree is worth a million dollars. It’s an interesting exercise in econometric advocacy, and I’m going to spend some time analyzing the authors’ claims.

I’m going to proceed in two parts. First, I’m going to assume for the purposes of argument that the paper’s interpretation of its data is correct in regard to the value of law degrees acquired in the past, and that, as they argue, there is no good reason to assume this value will not be maintained in regard to law degrees acquired in the future. Then I’ll critique those assumptions. Read more…