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David Frum wants to know why a gift to the Clinton Foundation isn’t a bribe to the current Secretary of State

[ 144 ] February 19, 2015 |

Ah the charms of Twitter-level analysis:

In what way were gifts to Clinton Foundation not a gigantic bribe to a serving Secretary of State & highly likely future president?

. . . oh wait, this has already been topped in this 24-hour cycle’s race for most ridiculous statement by a Prominent Conservative:

Rudy Giuliani went straight for the jugular Wednesday night during a private group dinner here featuring Wisconsin Gov. Scott Walker by openly questioning whether President Barack Obama “loves America.”

The former New York mayor, speaking in front of the 2016 Republican presidential contender and about 60 right-leaning business executives and conservative media types, directly challenged Obama’s patriotism, discussing what he called weak foreign policy decisions and questionable public remarks when confronting terrorists.

“I do not believe, and I know this is a horrible thing to say, but I do not believe that the president loves America,” Giuliani said during the dinner at the 21 Club, a former Prohibition-era speakeasy in midtown Manhattan. “He doesn’t love you. And he doesn’t love me. He wasn’t brought up the way you were brought up and I was brought up through love of this country.”

With Walker sitting just a few seats away, Giuliani continued by saying that “with all our flaws we’re the most exceptional country in the world. I’m looking for a presidential candidate who can express that, do that and carry it out.”

The day is young.

Don LeDuc, superstar

[ 34 ] February 18, 2015 |

Wolfcastle: The film is just me in front of a brick wall for an hour and a half. It cost $80 million.
Jay Sherman: How do you sleep at night?
Wolfcastle: On top of a pile of money, with many beautiful ladies.

If law school scamming were a slam dunk competition, this would be Western Michigan Thomas Cooley Law Dean Don LeDuc’s entry in the competition:

LeDuc, who got paid $1.9 million by the school between 2011 and 2013, and who did such a superb job handling the institution during this time that it only had to fire 59% of its full-time faculty last August, has launched an intellectual assault on the pernicious and deeply unscientific notion that LSAT scores could be used as predictors of future bar passage rates:

Is the use of an LSAT score for any purpose other than law school admissions proper?

Unequivocally, no. The LSAC’s cautionary policies say “[t]he LSAT was designed to serve admissions functions only. It has not been validated for any other purpose.” How much clearer can it be?

Jimmy: Dean LeDuc, I have a crazy friend who says that low LSAT scores correlate with low bar passage rates. Is he crazy?

Dean LeDuc: No Jimmy, just ignorant!

Those asserting that an individual will be unable or unlikely to pass a bar examination because that person’s LSAT score is below a certain level should be held to account. The LSAC has declared that the LSAT has not been validated as a predictor of future bar results. Anyone claiming that there is a relationship between an LSAT score and bar passage should be called to account and required to provide supporting evidence. And the burden should be on the person making the assertion, since the LSAC cautionary policy has already established that the LSAT has not been validated for that purpose.

Hey kids, let’s do a Scientific Study of this extremely complex issue.

First, let us select two law schools at random. Let us compare the bar passage performance of the graduates of the nation’s second-ranked law school with that of graduates of the tenth-best school in the land:

Because the scientific method requires controlling for confounding variables, such as the relative difficulty of the bar examination in different states, we will use bar passage rates of graduates in the two states (New York and California) in which a statistically significant number of graduates of the two schools took the bar between 2011 and 2013:

Yale: 427 takers, 403 passed (94.3793911007258%)

Thomas Cooley: 330 takers, 138 passed (41.818181818181%)

Do these rates correlate with the LSAT scores of the graduates? This is a more difficult question to answer, as we must use the 25th, 50th and 75th percentile LSAT scores of matriculants at the two schools as a proxy for the LSAT scores of the individual bar examinees, which are unknown.

Cooley matriculants in the classes of 2008-10 had LSAT scores of 144, 146, and 150 at the cut points. These scores represent the 23rd, the 30th, and the 44th percentile of test takers respectively.

Yale matriculants in those classes had LSAT scores of 170, 173, and 176, representing the 98th, 99th, and 99.6th percentiles.

While it is true these numbers are suggestive of some sort of correlation between LSAT scores and bar passage rates, the Scientific Method requires considering alternative hypotheses.

For instance, we know nothing about the LSAT scores of matriculants above the 75th and below the 25th percentiles at the two schools. It is statistically possible that the Cooley graduates who took the New York and California bar examinations had LSAT scores that were higher than the Yale graduates who sat for those bars (the Cooley graduates who took those examinations represent less than 25% of the school’s graduates in those years).

It is also possible that Yale Law School is nothing but a straightforward three-year bar review course, while Cooley students fill up their time taking seminars on what the text of the 1964 Civil Rights Act would have looked like if it had been drafted by Schopenhauer and Jay-Z, after they had spent three weeks in a Mexico City hotel room drinking some cheap crap called choco and reading Finnegans Wake while listening to the White Album, which is to say that the pedagogic methods employed at the two schools could well explain all of the difference in bar passage rates, because as everyone should have learned in Statistics 101, correlation is not causation.

Teach the controversy!

Another sad story

[ 23 ] February 17, 2015 |

Now sit right back and you’ll hear a tale, a tale of a fateful trip.

Well, not really.

In the summer of 1995, Joel Seligman left his position on the University of Michigan law school faculty to become dean of the University of Arizona’s law school. I had dinner with him that fall at his new Tuscon home — it was my idea of a mansion — and went to an Arizona football game with him the next day. Seligman was pitching his new school, and he spoke of his hopes of getting a “transformational gift” from the father of someone who had just graduated.

His hopes were realized three years later, when James Rogers pledged the mind-boggling sum of $115 million to his own and his son’s alma mater. It was at the time by far the largest gift anyone had made to a law school.

When you have as much money as I do, you can’t spend it on yourself,” said Rogers, 60, owner of the Las Vegas-based Sunbelt Communications media empire. ”After investing in your own business, giving money to education is the best investment you can make. If everybody did what I did, we would be the best educated people in the world.” . . .

The main objective of Rogers’ gift is to hold down the cost of attending the law school, while bolstering its faculty with more top-level legal scholars, said Joel Seligman, UA law school dean.

UA is 40th among American law schools, according to U.S. News & World Report’s 1998 ratings.

Its tuition – $4,538 per year for Arizona residents and $11,490 for non-residents – is among the five lowest of the top 50 law schools.

”We’ll soon have the lowest tuition in the top 50. We’ll be the best value in legal education,” said Seligman, who announced yesterday that he plans to step down.

How’d that work out?

It worked out great for Seligman, who parlayed his fund-raising coup into the deanship at Washington University St. Louis’s law school, and from there to the presidency of the University of Rochester, where three years ago his compensation was just under one million per year.

It worked out nicely for Rogers, who got the law school named for him (“look on my works, ye mighty, and despair!”), and then went on to be appointed the chancellor of the entire Nevada university system, although his four-decade-long post-law student background in higher education consisted solely of having given immense piles of cash to various institutions. (BTW Rogers made his fortune the old-fashioned way, by acquiring property rights in the enormous income stream generated by a government-created and protected monopoly, in the form television broadcasting licenses).

As for future law students at the University of Arizona, who were supposed to benefit from Rogers’ largesse in the form of cheap tuition and increased institutional pre$tige . . .

Amazingly (this is a rhetorical device, there’s really nothing surprising about it) resident tuition began to skyrocket at the law school almost before the ink was dry on Rogers’ gift, doubling over the next five years, and then doubling again in the next five after that, so that by 2009 it had risen from $4,538 to $20,895. Non-resident tuition also went through the roof, albeit not quite as quickly in percentage terms, rising from $11,490 to $35,807.

2008 and 2009 were the years of the Great Recession, so the university’s administrators decided to give students a break by . . . raising tuition even faster, so that by 2012 resident tuition was $27,272 — six times higher than thirteen years earlier, when Rogers made the largest gift in the history of American law schools in order to keep tuition at the school affordable — while raising non-resident tuition to a cool $42,283.

What did all this activity do to the law school’s revenue streams? Well in 1998 the school was generating about $2.5 million per year from tuition along with another few hundred thousand in gift income.

By 2012, massive tuition hikes, along Rogers’ gifts and those of others (he gave $50 million over 20 years, along $15 million in matching gifts to those from other donors, and he left a $50 million endowment bequest in his estate), had increased the school’s annual revenue from tuition and gifts alone to around $15 million.

Of course the other intended effect from the opening up this immense faucet — really more of a water-cannon — of cash flow was that it would rocket the law school toward the top of the national rankings:

Yale, Stanford, Harvard and . . . Arizona?

Communications mogul James E. Rogers hopes the University of Arizona will be mentioned among those elite law schools after he more than doubled his gift to UA yesterday to $130 million.

”This will put Arizona’s law school on the map,” Rogers said yesterday. ”It will signal that it’s a law school on the move.”

Oh well.

Arizona’s ranking actually fell between 1998 and 2012, from 40 to 43, and it never rose higher than 38th at any point during these years. In effect the school’s ranking didn’t move at all, nor did the entrance qualifications of its students, or their bar passage rates, or really anything else that’s measurable, other than the school’s radically enhanced revenue stream, and its faculty-student ratio, which went from 14.2 to 10.5 to 1. (I suspect the school’s administrator to student ratio improved much more drastically, but that information isn’t publicly available).

What happened? Did the university’s central administration decide to use the income from Rogers’ gifts to replace some or all of the school’s share of the university’s state tax support? That’s possible, but note that, despite being in a very right-wing state, the University of Arizona’s state appropriations rose from $259 million in 1998 to $362 million in 2007 and $464 million in 2012. So if the university was cutting the law school’s tax subsidy, it was doing so in a context in which the university’s overall subsidy was growing — which would have been a very audacious move, given that $50 million of Rogers’ gift was in the form of a bequest, and could thus be revoked by him at any time. (He died last summer).

In any case, the massive increase in the school’s operating budget, enabled by the combination of radical tuition hikes and Rogers’ gifts, resulted in nothing tangible for the school’s students beyond greatly increased debt loads that averaged, with accrued interest, more than $100,000 in 2013.

Indeed, reacting to plunging applicant numbers, in 2013 Arizona became the first ABA law school in memory to actually cut tuition, from $27,292 to $24,396 for residents, and from $42,902 to $38,856 for non-residents. This apparently didn’t move the needle much, at least in regard to non-residents, as the school slashed non-resident tuition by 30% last spring.

Anyway, this series of events illustrates nicely how empty the administrative rationale is that law schools, at least, have to constantly jack up tuition and grovel before robber barons in order to “compete” in the “rankings.” It also illustrates how little of what is called “affordability” by higher ed administrators has to do with the degree to which higher ed costs are subsidized, since more money just means more spending, at least until the marks customers students actually start to rebel.

The convergence of the twain

[ 12 ] February 13, 2015 |

fargo

And as the smart ship grew
In stature, grace, and hue,
In shadowy silent distance grew the Iceberg too.

As I predicted a year ago, Hamline’s law school is merging with William Mitchell. Hamline was a prime candidate for extinction, as it has suffered from massive enrollment declines despite slashing effective tuition (nearly half the student body was paying less than half of sticker tuition last year), and it’s part of a small, modestly endowed university, that’s in no position to carry a professional school that’s bleeding red ink with no end in sight.

The Twin Cities’ legal market is not much larger than Denver’s, so it made no sense for it to try to support four law schools. Should have been done long ago.

(h/t to several LGM readers)

The first rule of journalism

[ 62 ] February 13, 2015 |

. . . is, don’t let yourself get bullshitted by a guy who comes right out and tells you he’s a bullshitter.

The second rule of journalism is, if you end up breaking the first rule, don’t do it in an excerpt from your forthcoming book published in the New York Times.

Kevin Carey breaks both rules in this piece, which is too bad since his book looks interesting, and I’m sympathetic to what appears to its central thesis.

The excerpt uses a profile of Stephen Trachtenberg, who was president of George Washington University from 1988-2007, to illustrate some of the dysfunctions of the contemporary American university system. Carey starts by pointing out that over the past generation schools like GW have gotten extremely expensive, and it’s to say the least unclear whether these massive price increases have led to today’s students getting a better education than their predecessors: Read more…

Crazy old man rants in Central Park about young black men committing 95% of all murders

[ 143 ] February 11, 2015 |

Wait, did I say in Central Park? I meant at the Aspen Institute:

Bloomberg claimed that 95 percent of murders fall into a specific category: male, minority and between the ages of 15 and 25.

Per the most recent FBI statistics, the actual percentage appears to be 22.8.

Here are a few more surprising facts, soon to be featured on various websites near you:

Becoming a plumber is on average a more lucrative career choice than graduating from Harvard College:

If a person has the option of going to Harvard or becoming a plumber, he said he would suggest thinking about the plumbing career.

“The Harvard graduate on average will never catch up to a plumber,” Bloomberg said. “Partially because the first four years — instead of spending $60,000, you make $60,000.”

Unionized New York City waitresses make $150,000 per year, while ordinary waitresses make only $50,000 to $60,000:

In New York City, where 56 million tourists visit annually, Bloomberg said the hospitality and service industries are key. Though some might say those aren’t good jobs, he claimed that a waitress in the grand ballroom of the Waldorf Astoria Hotel makes $150,000 a year because of strong union negotiations. A waitress in a decent New York restaurant will make $50,000 to $60,000 a year, he said.

Legalizing marijuana is going to significantly lower the IQs of children:

When an audience member asked the 72-year-old Bloomberg about Colorado marijuana, he responded that it was a terrible idea, one that is hurting the developing minds of children. Though he admitted to smoking a joint in the 1960s, he said the drug is more accessible and more damaging today.

“What are we going to say in 10 years when we see all these kids whose IQs are 5 and 10 points lower than they would have been?” he asked. “I couldn’t feel more strongly about it, and my girlfriend says it’s no different than alcohol. It is different than alcohol. This is one of the stupider things that’s happening across our country.”

Also:

Bloomberg, who is now worth $36.6 billion, according to Forbes, said the poor in the U.S. need better education.

OK I quit.

Why charge less when increasing the price increases demand?

[ 30 ] February 10, 2015 |

That’s a question that university administrators have been asking themselves for many decades now. A couple of days ago, when asked to opine on the issue, Elena Kagan delicately suggested that, in conventional economic terms, it doesn’t make sense for Denny’s to charge almost as much for its Grand Slam Breakfast as Le Bernardin charges for its Thinly Shaved Geoduck.

[Northwestern Law School’s dean Dan] Rodriguez asked Kagan about the troubled state of legal education. Kagan demurred, stating that she was no longer in a position to advise law schools. But she did say she thinks “there ought to be more than one mode of legal education.” Since graduates of different law schools have different job opportunities when they graduate, Kagan said, not all schools should have the same teaching model—or tuition level—as “the elite law school model.”

No it certainly doesn’t seem to make sense for schools that send 5% of their graduates to high-paying legal jobs and four times as many to the unemployment line to charge 80% as much as Harvard, but such schools have been consistently charging 80% as much as Harvard since the memory of man runneth not to the contrary, aka the Eisenhower administration, if not earlier.

So why did they do so? The short answer is because they could. They could for a variety of reasons, but the one I’m going to focus on here is because the market for law degrees in this country seems to have featured an inverted demand curve — that is, one in which, all other things being equal, raising prices actually increased demand relative to competitors.

Consider a couple of natural experiments.

(1) The New York City area offers applicants about a dozen private law schools, and one public institution: CUNY. If you compare CUNY’s historical applicant pool to that of, say, New York Law School (not NYU), you’ll discover that until a couple of years ago, when after a blizzard of bad publicity NYLS’s applications started to collapse, NYLS was consistently getting about three times as many applicants as CUNY, even though it charged four times as much in tuition for New York residents relative to CUNY, and almost three times as much for non-residents. NYLS even had slightly higher entrance requirements, even though neither school carried any prestige on the hiring market (if anything, CUNY might have been the more desirable school from a prospective employment perspective, since it went and continues to go to great lengths to position itself as a law school dedicated to public interest practice).

Why, given the similar value of degrees of degrees from the schools on the employment market, would 6,000 people apply to NYLS in 2011 for the chance to pay $48,000 per year in tuition, when only 1,900 people applied to CUNY, where in-state tuition was $12,000, and non-resident tuition was $19,000? Why would three times as many people attempt to pay four times as much for what, in conventional economic terms, was pretty much the same thing?

(2) An even more stunning example of a radically inverted demand curve is provided by the tuition history of the University of Colorado Law School, where I teach.

Throughout the 1990s, CU raised its resident tuition (everybody gets resident tuition after their first year if they’re not already a resident, so for all practical purposes resident tuition represents the price of attending the school) by an average of about 8.5% per year, which incredibly enough was a markedly lower rate of increase than the typical public law school during these years. (Nation-wide, average public law school resident tuition nearly tripled between 1990 and 2002, but it only doubled at CU, from $3,130 to $6,352).

In 2003 the new dean convinced the central administration — I don’t imagine he had to break any arms or anything — to essentially quasi-privatize the school’s tuition over the next few years. This led to, even by the heady standards of American law schools, a truly mind-boggling series of price hikes, with the result that by 2011 tuition was fives times higher than it had been nine years earlier (four times higher in constant, inflation-adjusted terms).

What did this do to demand? Behold the wonders of the beneficent Market, home to sophisticated consumers, rationally maximizing their individual utility, world without end amen:

2.88% of all law school applicants applied to CU in the 2003-04 cycle.

4.13% of all law school applicants applied to CU in the 2011-12 cycle.

By increasing prices five-fold, CU increased demand by 43% relative to law schools nationally, even though over this same time average private law school tuition “only” went up by 61%, while average public resident tuition roughly doubled.

Did CU perhaps lower admissions standards, in order to make the school more attractive to a larger pool of potential applicants? Far from it stout yeoman: while the 2004 class had a median LSAT in the 84th percentile, the 2012 class’s median was in the 90th, and featured higher GPAs as well.

These experimental results are made even more vivid and robust by comparing CU’s outcomes to those at the University of Denver, just 30 miles down the road. While CU was quintupling its tuition, DU’s didn’t even double — meaning that in practical terms DU slashed its tuition relative to its neighbor’s — yet DU’s applicant pool was almost the reverse image of CU’s over these years, going from 4.18% of the national total in 2003 to 3.09% in 2011.

Note that if CU were a private corporation, its management would be violating its fiduciary obligation to the firm’s shareholders it they hadn’t raised tuition from $6,000 to $31,000, just as Honda’s management would be violating its legal duties if they hadn’t raised the price of an Accord from $20,000 to $100,000, if doing so would have led to selling 43% more cars relative to Toyota.

Now it seems, shall we say, unlikely that raising the price of an Accord to $100,000 would cause demand for the car to spike, but higher education in this country is clearly a very special sort of market.

60 years of law school tuition increases in the context of American family income

[ 22 ] February 7, 2015 |

Note: All dollar figures in this post have been converted to constant 2014 dollars.

Yesterday I wrote about Greg Crespi’s paper regarding the financing what he refers to as “Harvard-style” legal education. Crespi describes this model:

By this phrase, I am referring generically to the instructional approach that originated at Harvard Law School in the late-19th century and since then has been very widely replicated. This approach requires three years of full-time legal study or the part-time equivalent thereof over a longer period, where the instruction is provided by research-oriented faculties comprised primarily of well-paid, mostly tenured scholars with relatively light teaching loads. It makes only relatively modest use of inexpensive adjunct instructors and online courses. It also includes large and expensive clinical programs, library facilities, and extensive student services. This expensive educational approach is designed primarily to prepare students for prestigious public sector positions, highly remunerative associate positions with prominent private law firms, or academic positions, often after a short-term judicial clerkship after graduation.

In the last few years there’s been some — although not nearly enough — discussion of how much law school tuition has risen since the mid-1980s. People probably focus on the last 30 years for two reasons:

(1) Many current legal academics attended law school in the 1980s, so that’s their natural baseline for comparison.

(2) The ABA publishes easily accessible statistics on changes in law school tuition starting in 1985.

In fact law school tuition started rising dramatically 30 years before that, in the mid-1950s. In what follows, I outline how at that time a Harvard-style legal education was, by contemporary standards, practically “free” even at private law schools, and indeed even at Harvard itself, let alone at public law schools. I place quotation marks around “free” because something that’s often under-appreciated is how higher education in general and post-graduate education in particular always involves very considerable opportunity costs, aside from the direct costs of tuition and other direct expenses.

For example, although resident tuition was nearly nominal at almost all public law schools well into the 1970s, and continued to be so at many even into the 1990s, the typical graduate of these schools probably incurred around $100,000 in opportunity costs by spending three postgraduate years in school rather than the workforce.

Postgraduate education, in other words, always involves a significant financial commitment/gamble, even if the student is paying little or no tuition. This only serves to highlight how utterly extraordinary the increases in law school tuition have been.

Here are tuition and fees for Harvard Law School, along with mean figures for private law schools, and resident tuition at public law schools, over the past 60 years:

Harvard Tuition and Fees (2014$)

1953: $5,586
1963: $10,243
1973: $13,703
1983: $19,985
1993: $30,455
2003: $41,676
2013: $54,173

Average Private Law School Tuition and Fees (2014$)

1953: $4,575
1963: $8,400
1973: $11,330
1983: $15,400
1993: $24,293
2003: $32,904
2013: $42,666

Average public law school resident tuition (2014$)

1953: $1,473
1963: $2,305
1973: $3.465
1983: $3,921
1993: $7,238
2003: $13,920
2013: $24,266

While the overall increase in tuition across these decades should astound us, note that the rate of increase is far from smooth. For example, in real dollars, law school tuition rose modestly – relatively speaking of course — from the early 1970s through the early 1980s, especially at public schools (A similar pattern obtains for undergraduate tuition over these same years). I suspect this has something to do with the fact that inflation was very high during these years, and that it’s more difficult to raise real prices quickly when nominal prices are doubling over the course of a decade, as they did during this time.

The massive jump in tuition during the 1950s may have been in part caused by the GI Bill, but I would have expected the original Higher Education Act, passed in 1965, to have an even greater effect. The demographics of the baby boom are no doubt also significant here (the first baby boomers started enrolling in law school in the late 1960s, and law school enrollment doubled between 1968 and 1980, in part because women began to enroll in significant numbers). It may be that per capita tuition rose relatively slowly in the 1970s and early 1980s because revenues were being driven up so quickly by larger enrollments (enrollments increased much faster than the number of law schools).

Of course it’s important to place the cost of attendance in the context of larger economic trends. Here the story is fairly straightforward:

(1) Median family income shot up between the early 1950s and the early 1970s, so much so that even though private law school tuition skyrocketed, it remained relatively affordable relative to the average family’s income (Note that in the figures below I’m using family rather than household income, because family income, which tends to be about 20% higher than household income, is probably more significant in regard to financing higher education costs). Thus while a year’s worth of Harvard Law School tuition cost 16.8% of a median family’s income in 1953, that percentage had only grown to 23.9% 20 years later, even though HLS tuition rose by an amazing 145% in real terms over this time. During these years, the growth in the income thresholds for the 95th percentile of family income and the 99th percentile of family income were comparable to the growth in median family income.

1953:

Median family income: $32,918
95th percentile: $79,168
Threshold of top one percent: $141,000

1973:

Median family income: $57,391
95th percentile: $142,941
Threshold of top one percent: $263,500

(2) Starting in the early 1970s, growth in median family income stalled out. Over the next 20 years it remained essentially flat. Meanwhile the 95th percentile of income grew moderately, and that of the threshold of the top one percent increased a great deal.

1993:

Median family income: $59,623
95th percentile: $182,588
Threshold of top one percent: $393,000

While the average American family’s income wasn’t going anywhere, and that of those at the border of what can be thought of as the lower upper class (the 95th percentile) increased relatively slowly over the course of the two decades, private law school tuition doubled, and resident public law school tuition began for the first time to become a significant part of the cost of attending law school.

(3) Over the past 20 years, this pattern has continued:

2013:

Median family income: $64,690
95th percentile: $220,553
Threshold of top one percent: $510,000

Meanwhile, private law school tuition has nearly doubled yet again, and resident tuition at public law schools has more than tripled, reaching levels that exceed Harvard’s tuition in the 1980s, even though Harvard’s tuition had by that point already quadrupled in real terms over the previous 30 years.

One final note for now: it’s often claimed that the American economy boomed in the quarter century immediately after World War II, but has grown only modestly since then, which explains why median incomes have been flat for 40 years now. This is completely false:

Per capita GDP in 1953: $17,782
Per capita GDP in 1973: $28,241
Per capita GDP in 2013: $54,780

Per capita GDP grew by 58.8% between 1953 and 1973.

Per capita GDP grew by 94% between 1973 and 2013.

Most of this several trillion dollar increase in wealth per capita has of course gone to either the extremely rich, or the ordinarily rich, or the sort of rich. Meanwhile, the cost of a “Harvard-style” legal education* has gone from something that even a middle class family could afford without going into debt, to something that has to be debt-financed to the tune of several years’ worth of an average American’s income, unless one happens to already be in the upper-upper class.

This may work out OK if you’re getting a Harvard-style education at Harvard (although at these prices even that is getting dangerous for the not-already privileged). Of course the absurdity at the core of contemporary American legal education – and to a lesser extent at the center of American higher education in general – is that a 190-odd Not Harvard Law Schools have followed Harvard’s lead into the tuition stratosphere,* in a nation in which most families are at substantially the same income levels they were 40 years ago.

*In real dollars, Harvard Law School is currently collecting fives times as much each year in expendable endowment income as it received in total tuition in 1953, when the school’s endowment was comparatively negligible.

PAYE, PSLF, and the future of American higher education

[ 20 ] February 6, 2015 |

Greg Crespi, a law professor and economist at Southern Methodist University Law School, recently published a very interesting paper on the economics of the latest iterations of federal income-based repayment educational loan repayment programs, i.e., Pay As You Earn and Public Service Loan Forgiveness.

These programs are only a few years old, and as of yet relatively few college graduates in general, and law school graduates in particular, are taking advantage of them (or perhaps are even aware of the option to do so). But with massive educational debt becoming more and more common, this seems certain to change.

Crespi’s direct analysis is limited to the economics of law school attendance, but it’s obviously relevant by extension to graduate and professional schools more generally, and indeed to American higher ed as a whole. As for law schools, he concludes that, if not for the generous loan repayment terms now available via PAYE and (especially) PSLF, law school would be a bad investment for the vast majority of graduates of non-elite law schools, almost all of which nevertheless now feature “Harvard-style” — aka extremely expensive — operating structures. If graduates take advantage of these programs, however, the picture changes:

My conclusion is that the IBR loan repayment and debt forgiveness provisions are sufficiently attractive so that Harvard-style legal education is now again a financially viable proposition for many law students, not only for those students attending the most elite law schools but also for many students attending non-elite law schools, specifically those students who will graduate in the upper half of their class or better at the 40 or so upper- or mid-tier non-elite law schools, and also for those students who will graduate in the upper quarter of their class or better from one of the more than 150 lower-tier law schools. For most other law students, however, who in the current employment market have only a slim chance of obtaining a full-time entry-level legal position paying even $60,000/year, and who have very slim chances of obtaining a qualifying public service legal position under the PSLF program, attending law school is no longer economically justified even with the IBR and PSLF loan repayment options.

Crespi notes that even his optimistic take on the economic effects of PAYE and PSLF on law graduates, the current cost of law school still makes it, on the basis of his model, a bad investment for a majority of graduates of non-elite schools. But, according to his analysis, these programs make — or will make, assuming that they become standard pathways for large numbers of graduates in the coming years — law school a reasonable investment for a much larger number of graduates than it would be otherwise.

The paper is long and fairly technical, but should be read by anyone interested in the economics of American legal education, or for that matter those of American higher ed more generally. As Crespi’s analysis of the law school situation makes clear, PAYE and PSLF may end up having significant and quite perverse effects on the spiraling cost of law school, and again these sorts of effects are likely to be seen in many other higher ed contexts as well.

PAYE works like this: If a graduate qualifies for a “partial financial hardship,” the graduate doesn’t have to pay the full amortized monthly payment on the graduate’s federal loans, even under the extended 25-year repayment plan. The standards for a partial financial hardship are rather liberal, to the point where even many law graduates who secure “market rate” entry level jobs with big law firms (such jobs pay $160,000 salaries, at least in the biggest cities) qualify for PAYE.

Few law graduates get six-figure jobs — the median salary of 2013 grads with reported salaries was $62,000, and only about 40% of graduates had reported salaries, which means the real median was undoubtedly much lower — and since the average federal educational loan debt of new law graduates is approaching and may have already exceeded $150,000, the large majority of current law grads qualify for PAYE. Those who sign up for the program are required to pay 10% of that portion of their adjusted gross income that exceeds 150% of the federal poverty line for their tax status.

This system will often produce outcomes in which graduates will never pay any of the principal on their loans, and only a relatively small part of the interest. For example, assume a graduate obtains a job with a starting salary of $50,000 (this is probably higher than the median salary for current law grads), and has $150,000 in federal educational loans (a typical amount among current law grads). This person will under PAYE owe $277 per month at the start of repayment, and, assuming the graduate remains single with no dependents, and receives average annual raises of 4%, will pay $411 per month after ten years, and $633 per month at the end of the 20-year repayment period (If the grad has or acquires any dependents all these payment numbers will be correspondingly lower. Here is a calculator that allows debtors to determine what they would owe under various scenarios).

After 20 years, the grad will have made just over $100,000 in total payments, which in turn represents just about exactly half of the interest due under the loans. The balance on the loans will have grown to $253,000 (the unpaid interest on the loans accrues but doesn’t capitalize). At this point, Lord willing and the creek don’t rise, the entire balance is scheduled to be forgiven.

Crespi emphasizes that there’s a significant catch, which is that forgiven loans count as ordinary income, which means that the grad in this example would, in theory, owe federal income taxes on that $253,000. (This is what savvy law students and recent grads refer to as the “tax bomb,” waiting at the end of PAYE).

But Crespi’s otherwise accurate breakdown of the PAYE program omits an important detail, which is that the forgiven debt is taxable only to the extent that the forgiveness renders the taxpayer solvent. (The relevant sections of the IRC are 108(a)(1), 108(a)(3) and 108(d)(3)). Here’s an example. Suppose in the above hypo the taxpayer has a net worth, excluding the $253,000 in unpaid debt, of $100,000. That means that, prior to forgiveness, the taxpayer’s net worth is negative $153,000. This means the debt forgiveness puts the taxpayer $100,000 in the black, and he or she will owe federal income tax on $100,000, not $253,000.

The really great news is that the combination of the collapse of much of the traditional market for legal services and the general ravages of the Gilded Age II will undoubtedly leave many law graduates with no positive net worth even without regard to their student debt, which means they will owe nothing when that debt is discharged, no matter how large it may have grown.

The even better news is that the PSFL program has much more favorable terms than PAYE, as it requires only ten years of payments, and the forgiven amount will not be treated as income, which means no tax hit even if the graduate has significant net worth at the end of the repayment period. A very wide range of jobs qualify for PSLF: all government employment, all 501(c)(3) non-profit employment, and even many private non-profit jobs with non-501(c)(3) employees. (It will be interesting to see if government and other non-profit salaries begin to impute implicitly the benefits of PSFL into their compensation structures relative to for-profit employment).

As Crespi argues, all this adds up to a potentially powerful financial lifeline, not only to graduates drowning in debt, but to institutions that would otherwise be forced to alter their cost structures to take into account that their graduates were taking on debts that were completely out of proportion to the employment they were (or weren’t) subsequently securing.

Now it may be that law school, with its crushing cost relative to the employment outcomes for the graduates of all but a handful of elite institutions, may be something of a special case when considering the broader systemic effects of PAYE and PSLF. But, as is so often the case in regard to the financial structure of American higher education, I suspect that legal academia is just the canary in an increasingly toxic coal mine.

Future events such as these will affect you in the future

[ 11 ] February 4, 2015 |

criswell

Law schools for the last twenty years have been testing the elasticity of demand for their product. As tuition has increased each year, outpacing even the rate of inflation, law schools have been pressing toward the point where significant numbers of college graduates may decide that it makes good economic sense to seek less expensive forms of graduate education or forgo additional credentials altogether.

Research to date has yielded no firm answer to the question of how elastic the demand for legal education is. Superficial evidence, however, suggests that demand has proven amazingly inelastic with reference to price.

John R. Kramer, “Will Legal Education Remain Affordable, By Whom, And How?” Duke Law Journal

This article, written by the dean of Tulane’s law school, is a good example of how certain critics of the status quo in American legal education are prone to abuse statistical extrapolation to reach absurdly alarmist conclusions, in the pursuit of obscure agendas that deserve further investigation.

Kramer points out that average private law school tuition increased by 60% in real dollar terms between 1974 and 1986, to reach the startling total of $8,230. This is admittedly a massive increase in the real price of law school attendance, but Kramer’s claim (p. 244) that if private law school tuition increases by an average of 7% per year in nominal dollars between 1986 and 2000 it will be more than $21,000 (!) by the turn of the century is absurd on its face.

What Kramer fails to take into account is that the period between the mid-1970s and mid-1980s featured a very unusual combination of social and economic factors, which produced increases in real tuition that are so obviously unsustainable going forward that any extrapolation based on this period is the equivalent of claiming on the basis of similar statistical “reasoning” that two or three decades from now university presidents will be getting paid seven-figure salaries, with, we must suppose, most of the teaching at their institutions being done by the academic equivalent of drastically underpaid temp workers, in order to help fund this hypothetical orgy of administrative compensation.

The problem with this kind of thing is that it has no logical end point: as someone once said, extrapolation is the crack cocaine of the statistically-minded. After all, why does Kramer stop his extrapolation fourteen years into the future? Because 2000 is a nice round number? Why not extend his analysis out another fourteen years, and conclude that, if the extraordinary circumstances that led to a 60% rise in tuition in real dollars since 1974 continue until then, private law school tuition will average, assuming historical rates of inflation, $43,000, and that, if the gap between the average and the highest rates remain constant, some sufficiently audacious school will be charging $60,000 in tuition and fees?

Similarly, Kramer notes that over the last 12 years student-faculty ratios at ABA schools have declined by 17.5%, from 29.5 to 24.2 to 1. Why doesn’t he keep playing the same statistical game, and inform us that, given this trend, that ratio will be 13.5 to 1 fourteen years into the coming century? And who exactly is going to finance this parade of horribles, and how? Is Dean Kramer’s theory that students are going to take on $150,000 in debt to get a law degree, and that the government will simply loan anyone admitted to law school whatever amount of money law schools choose to charge?

In short, to state Kramer’s thesis is to refute it. All this makes one wonder what Kramer’s real agenda must be. In any case, someone should remind Dean Kramer that alarmism in the putative service of fiscal prudence is no virtue.

The Super Bowl trophy presentation ceremony

[ 50 ] February 2, 2015 |

In socialist regimes, the championship trophy is handed first to the captain of the team. This unthinking brute imagines that he and his team mates are responsible for the victory that has just been achieved, and his society reinforces this destructive fantasy through its public rituals:

trophy

In America (or at least in the NFL, same difference), the trophy is first handed to the real producer of the triumph:

trophyii

As a great philosopher once observed:

Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions—and you’ll learn that man’s mind is the root of all the goods produced and of all the wealth that has ever existed on earth.

But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man’s capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made—before it can be looted or mooched—made by the effort of every honest man, each to the extent of his ability.

Night Will Fall

[ 69 ] January 30, 2015 |

Night Will Fall is an HBO documentary about one aspect of the Holocaust. Specifically it’s a documentary about the making of another documentary: German Concentration Camps: Factual Survey. GCCFS was filmed, written, and edited — by among others Alfred Hitchcock — in the spring and summer of 1945, but then shelved for political reasons; it was only completed recently, by members of the Imperial War College. It has not yet had any general release, but hopefully Night Will Fall will help change that.

Indeed the most compelling features of Night Will Fall are a few minutes of excerpts from GCCFS, along with digitally restored footage taken for the making of the older film. A few observations:

1. One of the striking aspects of both the British and American response to the liberation of various concentration camps in Germany was that military authorities in both nations immediately mobilized considerable resources to document what their troops had found. Gen. Eisenhower in particular insisted on having a delegation of leaders of both houses of Congress visit the camps at once, even though the war in Europe was still being fought. (The report to Congress this visit generated is well worth reading, as among other things it illustrates how relatively little understanding the Allies had of the true scope and nature of the Final Solution even by the end of the war).

The Russians also brought in cameras to Auschwitz and Majdanek immediately after capturing them. The latter camp was unusually well preserved, because the rapid advance of the Red Army caught the SS by surprise, and much of the sort of evidence that was destroyed at other camps was preserved there. German Concentration Camps: Factual Survey employees some of this footage as well.

All this demonstrates how the Allies appreciated at the the time that the enormity of the Nazis’ crimes would be met with incredulity, no doubt in part because both world wars featured the use on all sides of exaggerated or wholly invented atrocity stories for propaganda purposes. In the case of the Holocaust, the atrocity stories turned out to be considerable understatements.

2. Night Will Fall isn’t an easy film to watch. The restored footage from the camps is in many cases extremely disturbing — as an Imperial War College expert who took part in the restoration notes, the tradition among those who photographed and filmed war had until then been to avoid graphic representations of war’s carnage, but this tradition was certainly not followed by the camera operators (almost all of them military men who had just learned to use their equipment) who chronicled what they found in the camps.

Perhaps the most disturbing aspect of the images is that they make clear the extent to which the deaths in places like Dachau and Bergen-Belsen were products of brute starvation: the sheer emaciation of the corpses (and the film features thousands of corpses, including those of many women and children) is almost beyond belief. A couple of the camera operators — hardened soldiers being interviewed nearly 70 years after the fact — break down in tears when recounting their memories of their roles in the making of the original film.

3. For all the indescribable barbarity and horror of the concentration camps, these camps were in a sense peripheral to the core of the Holocaust: a point which GCCFS cannot have possibly conveyed, since this wasn’t understood at the time, but which the makers of Night Will Fall should have noted.

Although I’m far from an expert in these matters, it seems to me unfortunate that the sites that did make up the core of the Holcaust — Treblinka, Belzec, Sobibor, Chelmno, and Auschwitz Birkenau — are referred to in English, following the German usage of the Nazis themselves, as “camps.” The word camp is properly applied to the forced labor prisons, designed originally for political prisoners and other “undesirables,” that are the focus of GCCFS and Night Will Fall. These concentration camps were qualitatively similar to the Soviet gulags, in that, although they ended up killing large numbers of their inmates as a consequence of extremely brutal conditions, rampant disease, starvation diets, and arbitrary executions, they were not designed to carry out bureaucratized, industrialized, carefully cataloged mass murder on a daily basis. What could more properly be called the Nazi murder factories were designed for no other purpose. Indeed these “camps” had essentially no residents, since, with the exception of a handful of inmates conscripted into the sonderkommando, the millions sent to them were murdered within a few hours of their arrival.

The word “camp,” even in the form of “extermination camp” or “death camp” can, I think, obscure what the essence of the Holocaust really was. The Nazis went to extraordinary lengths to hide the existence of these places, and indeed unlike the concentration and labor camps, the murder factories were never liberated or filmed (Auschwitz Birkenau was shut down and mostly dismantled months before the Soviets captured the territory on which it had operated, while the other murder factories were obliterated by the SS when they were abandoned, well before the lands on which they had stood were overrun by the Red Army. The one exception was Majdanek, but it was primarily a concentration camp, and it operated as an extermination center on a relatively small scale).

Holocaust denial is based almost exclusively on this fact, which once again illustrates the prescience of the Allies in doing what they could to document through film those parts of the Nazi murder machine that could not be disassembled before Allied troops swept over them.

Hopefully now that it has finally been completed, German Concentration Camps: Factual Survey will have a general theatrical release, and be made available on DVD. In the meantime, Night Will Fall is a film that ought to be seen.

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