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The usual suspects

[ 76 ] November 6, 2014 |

Jeff Toobin has a piece in the New Yorker pointing out that increasingly stratified economics of the legal profession reflect larger social trends:

In the legal world, the haves are doing better than fine. In 1985, average profits per partner in The American Lawyer’s list of leading law firms was $309,000 ($623,000 in current dollars); today, the profits per partner for roughly the same group is about $1.5 million. These numbers hide an even greater disparity. Those at the very top of the pyramid—firms such as Wachtell, Lipton, Rosen & Katz; Quinn Emanuel Urquhart & Sullivan; Cravath, Swain & Moore; and a handful of others—are thriving as never before, with annual profits per partner in the multimillions.

But those at the bottom of the pyramid—recent law-school graduates—are struggling. A recent article in The Atlantic recited the grim numbers . . . [Yet] law schools have continued to cycle students through their doors and load them up with debt, in spite of the reduced demand for legal education (and for lawyers). Eighty-five percent of graduates now carry at least a hundred thousand dollars in debt. Even dubious operations, like the Thomas Jefferson School of Law, in San Diego, have kept their doors (and palms) open.

It’s clear that the nation needs fewer law schools, for many that remain are only offering their students false hopes of employment in exchange for big debt. These students are getting the legal-education equivalent of the subprime loans that helped sink the national economy. In this case, though, the risk to the broader public is small, while the indebted students may struggle with the burden for the rest of their lives. (The vast middle of the legal academy—at the big state schools, for instance—is doing only a little better than the schools at the bottom. For a full view of the depressing facts, see the superb Law School Transparency Web site.)

As with law firms, the top law schools are doing fine. Graduates of the most highly regarded institutions may not have the cornucopia of options that their predecessors enjoyed a few years ago, but few, if any, will go jobless. These students have large loans, too, but they’ll be able to repay them. As in days past, they will migrate to the big firms, where, by and large, their prospects are bright. And the cycle will continue: the rich (in credentials, at least initially) prospering, and the poor struggling. So it goes for lawyers—and, it seems, for everyone else.

(The last paragraph overstates in my view the extent to which graduates of even the most elite law schools are insulated from financial disaster, but Toobin’s general point is correct).

Speaking of New Yorkers, here’s a nice illustration of the perverse economic structure of the system:

New York Law School is a large, perpetually unranked law school, occupying a fancy new building that it put up on prime Tribeca real estate.

The school charges nearly $50,000 per year in tuition, and estimates the nine-month cost of living for students as $23,591 — a realistic figure for anywhere within reasonable commuting distance — meaning that someone paying full tuition who finances the cost of attendance with federal loans will rack up around $273,000 in debt, including interest, by the time the first federal loan payment comes due six months after graduation. Even someone with a 50% scholarship who takes out federal loans will have $180,000 in non-dischargeable loan debt. (Last year, fully half of all NYLS students paid sticker tuition, and 96.5% paid more than 50% of the sticker price).

Job outcomes for 2013 grads:

56% of graduates did not get a legal job within nine months of graduation.

Nearly 30% had no full time work of any kind.

More than 100 of 562 graduates were completely unemployed nine months after graduation.

5.7% of graduates (at most) got jobs with salaries that would theoretically allow them to begin to repay in a timely manner the average graduate’s debt load, even with that debt being paid back on the government’s 25-year extended repayment plan.

Meanwhile, on the other side of the accounting ledger:

In FY2013 the school reported earning $106,725,026 in revenue. More than $71 million of this came in the form of tuition (slightly less than 10% of this tuition was redistributed to students receiving “scholarships,” i.e., cross-subsidized tuition discounts, paid for by their less fortunate brethern).

Most of the rest of the school’s income came from the fruits of its financial investments, made possible by the collection of tuition revenues over many years. Note that NYLS has a very small endowment relative to its revenues — $32.3 million at the end of FY2013. These funds are of course almost all restricted by the terms under which they were donated. Such restrictions don’t apply to the “donations” students (or more accurately taxpayers, via federal loans) make in the form of tuition payments.

As of the end of FY2013 NYLS owned, outside of any endowment restrictions, more than $158,000,000 in publicly-traded securities, and $110,000,000 in other securities. In addition, the school has been engaging in the most straightforward (from an accounting perspective at least) financial speculation, in the form of interest rate swaps. Gambling on these financial derivatives cost the school $17,548,000 in losses in FY2012, while earning it $13,038,000 in FY2013.

Where is all this money going? Apparently, to a handful of favored faculty members, who, even by the standards of contemporary law schools, are drawing stupendous salaries and other forms of compensation.

Consider Prof. Marshall Tracht. Prof. Tacht entered legal academia 20 years ago, published three law review articles on the way to getting tenure at Hofstra (and apparently not much else since, besides teaching materials and brief notes for practitioners), then moved over to NYLS in 2008.

I asked a couple of colleagues who write in the areas in which Prof. Tracht specializes if they had ever heard of him. They hadn’t. Nevertheless, Prof. Tracht was paid $451,477 by NYLS (or more precisely by NYLS’s students, or more precisely yet by the taxpayers who unwittingly lent those students the money that in due course found its way into the professor’s accounts).

Five other NYLS faculty members (not counting the dean, who was paid $468,635) were paid between $327,892 and $383,499 in FY2013.

What possible justification could there be for this sort of thing? Let’s round up the usual suspects:

(1) NYLS must compete for top scholars in order to preserve and enhance its scholarly reputation.

NYLS has no scholarly reputation in the legal academic world.

(2) NYLS must compete for top scholars in order to preserve and enhance its place in the law school rankings.

NYLS place in the law school rankings is that it is unranked, i.e., tied for last place with about 65 other schools.

(3) NYLS must compete for top scholars in order to attract students who will want to study under various luminaries of the profession.

See (1) and (2) supra.

(4) NYLS is merely charging what the market will bear, and distributing the proceeds of these efficient market transactions to key employees on the basis of institutional self-interest, which, in an efficient market, results, in the long run, in socially beneficial outcomes.

This sounds somewhat more plausible if you say it to yourself in a robot voice.

Other people’s money

[ 16 ] November 5, 2014 |

Berkeley law professor Steven Solomon has a curious piece in the NYT today on how and why the Thomas Jefferson School of Law managed to survive, for now, by working out a deal with its creditors after defaulting on its bond obligations this summer.

Solomon argues that it doesn’t make financial sense for private creditors of free-standing schools, or central university administrators of university-affiliated schools (90% of ABA law schools are in the latter category) to close down a law school, at least while there’s any reasonable prospect of bringing revenues and expenses into balance:

[A] closed law school is worth little, or most likely nothing, to creditors. The value is only in the revenue stream it produces and perhaps its building. (You could say the books also, but these are increasingly fewer.) And these days, that revenue stream is down 20 to 40 percent, meaning that if law schools were for-profit businesses, most would be failures.

A troubled law school is like Dracula: hard to kill. Creditors will not do so because even keeping a struggling school alive means there is some possibility of repayment.

Most law schools, however, don’t have huge bonds to service, or at least, the debt they have is borne by the university. For these schools, the calculus is even easier. If a closed law school is worth nothing and a nice big building without students is useless, then keeping it open remains the only option.

Shutting down a law school at a larger university also puts the administrators and others out of work, with few options for employment. They have every incentive to keep the school alive.

This explains why, despite forecasts that up to a third of law schools could close, even the most financially dire have not. Instead, law schools are doing everything they can to push down costs hard and fast. Reports of layoffs of professors, buyouts and job cuts abound even for those with tenure. For years, central campuses sucked money out of law schools. Now they are keeping them alive.

Solomon sees all this as evidence that “the market” is working, if somewhat slowly and imperfectly:

The failure of law schools to close may also simply be a recognition that the market is adjusting to today’s realities. The struggle is pushing down the costs of operating a law school, and law schools are still valuable to universities. It may be tempting to shut them in these difficult times, but it can cost tens of millions to open a new one. Better to invest and cut back on expenses for a while and see what happens.

The status quo is likely to remain as some are forecasting that the bottom is almost here for law schools. This is how economics works: Markets tend to overshoot on the way up, and down.

Stephen Harper, author of The Lawyer Bubble, points out what’s missing from this analysis:

Solomon suggests that creditors made the only deal possible and the school is the ultimate winner. He gives little attention to the real losers in this latest example of a legal education market that is not working: Thomas Jefferson’s students, the legal profession, and taxpayers.

In retrospect, the restructuring agreement between the school and its bondholders reveals that a deal was always likely. That’s because both sides could use other people’s money to make it, as they have since 2008.

According to published reports, interest on the taxable portion of the 2008 bond issuance was 11 percent. Tax-exempt bondholders earned more than 7 percent interest. Thanks to federally-backed student tuition loans, taxpayers then subsidized the school’s revenue streams that provided quarterly interest and principal payments to those bondholders. (emphasis added)

That attending TJSL turns out to be a life-wrecking disaster for a very large proportion of its students is, as Harper emphasizes “irrelevant” in this sort of deeply dysfunctional market:

Thomas Jefferson’s low bar passage rate [54% in 2012] made no difference to most of its graduates because the full-time long-term bar passage-employment rate for the class of 2013 was 29 percent, as it was for the class of 2012.

Meanwhile, its perennially high tuition (currently $44,900 a year) put Thomas Jefferson #1 on the U.S. News list of schools whose students incurred the greatest law school indebtedness: $180,665 for the class of 2013 [Note that this figure doesn’t include interest accrued during law school, so the average TJSL graduate has well over $200,000 in law school debt alone at graduation]. According to National Jurist, the school generates 95 percent of its income from tuition.

This invites an obvious question: How did the school survive so long and what is prolonging its life?

First, owing to unemployed recent graduates with massive student loans, bondholders received handsome quarterly payments for more than five years — much of it tax-exempt interest. The disconnect between student outcomes and the easy availability for federal loans blocked a true market response to a deteriorating situation. Bondholders should also give an appreciative nod to federal taxpayers who are guaranteeing those loans and will foot the bill for graduates entering income-based loan forgiveness programs.

Second, headlines touted Thomas Jefferson’s new deal as “slashing debt” by $87 million, but bondholders now own the law school building and will reportedly receive a market rate rent from the school — $5 million a year. Future student loans unrelated to student outcomes will provide those funds.

Third, the school issued $40 million in new bonds that will pay the current bondholders two percent. Student loan debt will make those payments possible.

Precisely.

Solomon doesn’t resist the urge to take a crack at certain unnamed critics of the law school status quo in America, who were supposedly enjoying “shivers of delight” at the prospect of seeing TJSL “keel over.” (Solomon links to an article in which I’m quoted using the latter phrase.) I’m not going to resist the urge to quote a couple of comments from the NYT site regarding his article:

Prof. Solomon’s stance in the face of this debacle is puzzling. He sardonically calls out the “shivers of delight” he attributes to critics such as Brian Tamanaha and Paul Campos who for years have been writing soberly and lucidly about these highly unethical operations that are just conduits of federal loan funds to overpaid faculty and administrators (the president/dean of Thomas Jefferson reportedly makes well over $500,00 per annum). Why Prof. Solomon feels called upon to defend this unconscionable system is a mystery.

To which another reader replies:

Yes, such a riddle wrapped up in an enigma why Prof. Solomon would support this money-printing operation. Someone please get the FBI on the case. We need answers, because I just can’t fathom why Berkeley law professor Solomon would support the Thomas Jefferson School of Law. It really makes no sense. I’m going to have to sleep on this one and see if I come up with some answers in the morning. Better yet, I’ll retain the services of an Ivy League consultant to perform an analysis on why Prof. Solomon would defend this institution. It’s a modern day mystery!

What are the odds of a SCOTUS vacancy by November 2015 and November 2016?

[ 114 ] November 5, 2014 |

Last spring, Jon Chait pointed out that if the Senate flipped to the GOP in November, this would have no significant short-term legislative consequences (with the House under GOP control no major legislation was going to be passed during the remainder of the Obama presidency in any event), but that such a flip would have profound consequences for presidential appointments in general, for potential SCOTUS nominations in particular, and for nominations to replace a right-wing justice in even more particularity.

Given the gradual breakdown of informal political norms regarding presidential appointments, and especially SCOTUS appointments, it’s now arguably become game theory 101 that no GOP-controlled Senate is going to allow Obama to appoint a SCOTUS justice at any point during the last two years of his presidency, and this is especially true for an appointment that would flip the SCOTUS, by replacing anyone other than Ginsberg, Breyer, Sotomayor, or Kagan:

It may seem implausible that Republicans would simply refuse to allow Obama to appoint any justice to such a vacancy. That is only because things that haven’t happened before are hard to imagine. But such a confrontation is not only a logical outcome but the most logical outcome. Voting to flip the Supreme Court would be, if not a political death warrant for a Republican Senator, then certainly taking one’s political life into one’s own hands. Politicians do not like political death warrants — certainly not for the benefit of the opposing party’s agenda.

The modern pattern in American politics is that tactics that are legally available, but never used for reasons of custom, eventually become used. The modern pattern is also that the Republican Party, which is the most ideologically cohesive and disciplined party, leads the way. McConnell did not create this pattern, but he is an important innovator.

McConnell was among the first political leaders to grasp that Republicans had everything to gain and nothing to lose from withholding support for every major element of Obama’s agenda — that the old Beltway folklore, which warned the opposition party that voters would punish them if they appeared obstructionist, had no basis in reality. Most people pay no attention to the details of policy, and form rough judgments on the basis of how much noise and controversy rises out of Washington. “It was absolutely critical that everybody be together because if the proponents of the bill were able to say it was bipartisan, it tended to convey to the public that this is O.K., they must have figured it out,” he confessed. Political scientists understood this reality perfectly well, but it was utterly strange to the old-line purveyors of Washington conventional wisdom. McConnell moneyballed the Senate.

It stands to reason that if and when new powers are laid at his disposal, McConnell will once again deploy them creatively. A potential Supreme Court crisis, in which the Senate simply refuses to let the president fill a vacancy on any remotely normal terms, is one possibility. Others may be brewing at this moment deep within McConnell’s extensive imagination.

What are the odds that such a vacancy will occur? This of course has to be a speculative calculation, but it’s far from completely speculative. We can begin with the general actuarial probabilities that one of the SCOTUS justices will die within the next year, or the next two years (The distinction is important because the practical consequences of, say, a potential 20-month vacancy on the SCOTUS are very different from those of a three or six-month vacancy).

While it’s true that population-wide probabilities are of limited value in regard to particular individuals, it’s also true that the various reasons one can come up with as to why they aren’t going to be accurate in a particular case tend to cancel each other out. For example, the SCOTUS justices are in the American upper class, which means that all other things being equal their life expectancies are better than those of Americans in general, but on the other hand they are doing high-stress work, especially in comparison to most geriatric individuals etc. etc.

Anyway . . .

Approximate probability of at least one SCOTUS justice dying by November 2015: 22.5%

Approximate probability of at least one SCOTUS justice dying by November 2016: 36.8%

Approximate probability of at least one conservative SCOTUS justice dying by November 2015: 14%

Approximate probability of at least one conservative SCOTUS justice dying by November 2016: 26.2%

Of course to the extent these probabilities are accurate, they establish a floor for possible SCOTUS vacancies. They must be enhanced by the odds of a justice retiring for health or other reasons, which are naturally far more speculative. If we assume the combined odds of all such events are equivalent to even half of the mortality risk currently faced by members of the American Politburo Supreme Court, then the odds of a SCOTUS vacancy during the remainder of Obama’s presidency rise to just about 50/50, and the odds of a swing SCOTUS vacancy arising with more than a year remaining in Obama’s term are better than one in five.

Would the latter circumstance lead to the SCOTUS having only eight justices (or less) for more than a year? I agree with Jon that the answer to that question is almost certainly yes. Whether that would create some sort of political or constitutional crisis is another question, regarding which I don’t have an opinion at the moment.

Statistical fun for the whole family: When will there no longer be anyone living who was alive during the 1800s?

[ 78 ] November 4, 2014 |

(I won’t say the 19th century, because pedants will insist that ended on December 31, 1900.)

This is a challenge for statistically-inclined LGMers.

As of today, there are still six people alive with verified birthdates prior to 1900. All are women. Four are Americans, the oldest is Japanese, and the youngest is Italian.

Their ages:

116 years 244 days
116 years 123 days
115 years 165 days
115 years 121 days
115 years 103 days
114 years 340 days

Per social security actuarial tables, an American woman has a life expectancy of .84 years on her 115th birthday, and a 72.95% probability of dying within the next 365 days. The comparable figures on her 116th birthday are .77 years and 77.33%. For her 117th birthday, they are .71 years and 81.82%. For her 118th birthday, they are .66 years and 85.90. For her 119th birthday, they are .60 years and 90.20%. I don’t have comparable figures for Japanese and Italians, but let’s assume they’re the same.

On what future date is there a 50% probability that there will no longer be any people alive who were born in the 1800s?

More on the Infilaw racket

[ 22 ] October 30, 2014 |

Updated to include 2014 admissions data

My article in the Atlantic on Infilaw’s law school operations has elicited a response from Ken Randall, formerly dean at Alabama, and currently President of Infilaw Ventures, which Infilaw describes as an effort to “extend education to the under-served nationally and internationally, focusing on student needs and outcomes.”

Randall’s reply consists largely of hand-waving, since the main points of my article — that all the Infilaw schools feature terrible employment outcomes, and absurdly high educational debt loads, which I estimate at more than $200,000 on average per graduate — aren’t open to dispute. Randall does claim that Florida Coastal, at least, has had great success in getting graduates with abysmal LSAT scores to pass the bar, although, as I point out in my response, he doesn’t provide the necessary data to test this claim.

I noted in the article that until very recently, Florida Coastal admitted relatively few such students (barely 10 percent of applicants with sub-145 LSAT scores were admitted in 2009; more than half of applicants with such scores were admitted last year). This means that the members of those Florida Coastal classes with large numbers of sub-145 matriculants have yet to attempt to pass the bar.

(A 144 LSAT represents the 23rd percentile score among all test-takers).

Coincidentally, within a few days of the publication of Randall’s letter, bar results for the July 2014 exam became available in Florida, Arizona, and North Carolina, where Infilaw’s three current schools (the consortium is now trying to acquire Charleston Law School, in the face of strong opposition from alumni and others) are located.

The 2014 bar exam results are particularly significant because, with the matriculation of the class of 2011, the Infilaw schools began to relax what admission standards they had maintained up until then, and they have continued to slash them even more radically in the years since. (The entering classes of 2011 made up almost all of the first-time takers of the 2014 bar from the three schools). Here are the 75th, 50th, and 25th LSAT scores for the entering classes at Florida Coastal, Arizona Summit, and Charlotte.

Florida Coastal

2009 153 150 147

2011 151 147 145

2013 148 144 141

2014 147 143 140

Arizona Summit

2009 154 151 148

2011 151 148 146

2013 148 144 141

2014 149 144 140

Charlotte

2009 153 151 148

2011 151 148 145

2013 149 144 141

2014 146 142 138

Here is a percentile conversion chart for LSAT scores. While it is true that it’s important not to overstate the significance of the LSAT as a measure of overall intelligence, or as a predictor of an eventual ability to practice law at an acceptably competent level, it’s also true that there is a genuinely massive difference between an LSAT score in the low 150s and the low 140s.

Indeed, as I noted in my original article, while relatively little correlation can be found between LSAT scores and bar passage rates at higher levels, a strong relationship begins to appear as scores dip toward the 150 range. Prior to 2011, the Infilaw schools clearly strove to keep the median LSAT for their matriculants in the 150s, and to admit relatively few applicants with scores in the 140s, and especially in the low 140s. As the statistics above indicate, three years ago that policy started to give way to the need to keep sending large sums of money to Sterling Partners, the Chicago-based private equity firm that owns Infilaw, and the trend has accelerated since then.

In the article, I predicted that Infilaw graduates would soon begin to fail the bar in large numbers, since what little data existed regarding graduates with LSAT scores in the mid to low 140s (there was little data because until about three years ago only a tiny number of law graduates had such scores) suggested that even turning law school into a three-year bar review course — a pedagogical approach which has less than zero intellectual value, and no practical value for anything other than passing the bar — won’t be able to produce reasonable bar passage rates among these graduates.

The 2014 bar results for the three Infilaw schools provide grim evidence for this prediction. Up until this year, all three schools had mostly managed to maintain bar passage rates roughly similar to the average passage rate in their respective states. For example, Florida Coastal graduates who were first-time takers of the Florida bar passed the exam at rates of between 74.2% and 76.0% between 2010 and 2012 (the passage rate for all first-time takers in the state was between 77.6% and 80.0% during those years). Results were similar for Arizona Summit and Charlotte

This July, FCSL’s first-time passage rate fell to 58% — and that percentage was apparently the highest of the three Infilaw schools. July results for Arizona Summit revealed that 54.4% of first-time takers passed (compared to 89.2% and 88.6% of first-time takers from the state’s other two law schools). Meanwhile, 55% of Charlotte graduates passed the July, 2014 North Carolina bar.

Keep in mind that these results are for 2011 matriculants (and some 2010 part-time matriculants). In other words, there’s every reason to expect these terrible results — imagine graduating from law school with $200,000 in non-dischargeable educational loans and no law license — to get much worse, as the entry standards for the matriculating classes of 2013 at these schools were substantially worse than those for the classes of 2011.

Note too that Infilaw is going to considerable extremes to artificially pump up even these terrible numbers:

In addition, after the article’s publication, a former member of the school’s faculty revealed to me that Florida Coastal is now paying selected graduates $1,200 a month for seven months, if they agree to take bar-review and career-preparation courses for six months (!) rather than attempting to pass the July bar exam subsequent to their graduation.

(I was told last week that at least one of the other two Infilaw schools is employing a similar program).

All this adds up to what appears to be a decision on the part of Infilaw (and, ultimately, Sterling Partners) to engage in the higher educational equivalent of a bust-out scheme. Indeed, I was told recenlty by a faculty member at one of these schools that, during the 2010-11 application cycle, Infilaw made it quite explicit to the school’s faculty that they would no longer have any real say in admissions decisions, after some faculty members warned the school’s administration that many of the students the administration was choosing to admit during that cycle would have little or no chance of ever passing the bar.

And to those who ask why “the ABA” isn’t doing something about this, the answer can be found readily enough by considering the extent to which the ABA’s Section of Legal Education provides a textbook example of regulatory capture:

As [Randall’s] letter illustrates, InfiLaw has pursued an aggressive strategy of purchasing the services of prominent figures in the ABA regulatory apparatus, such as himself, Jay Conison, and former Detroit Mayor Dennis Archer, who is currently both the chairman of InfiLaw’s National Policy Board and the head of an ABA committee charged with studying the financial structure of legal education.

This is not, in other words, what one would call a subtle operation.

Your honor, the murder of his parents has left my client an orphan

[ 15 ] October 20, 2014 |

Please take this into account when sentencing him for the crime.

Escape from Nixonland

[ 13 ] October 14, 2014 |

fdr

lbj

Paul Krugman points out yet again why, as the annual deficit continues to shrink, “deficit hawks” remain undeterred by the spectacular inaccuracy of their predictions:

But what about people who pay a lot of attention to the budget, the self-proclaimed deficit hawks? (Some of us prefer to call them deficit scolds.) They’ve spent the past few years telling us that budget shortfalls are the most important issue facing the nation, that terrible things will happen unless we act to stem the flow of red ink. Are they expressing satisfaction over the fading of that threat?

Not a chance. Far from celebrating the deficit’s decline, the usual suspects — fiscal-scold think tanks, inside-the-Beltway pundits — seem annoyed by the news. It’s a “false victory,” they declare. “Trillion dollar deficits are coming back,” they warn. And they’re furious with President Obama for saying that it’s time to get past “mindless austerity” and “manufactured crises.” He’s declaring mission accomplished, they say, when he should be making another push for entitlement reform.

All of which demonstrates a truth that has been apparent for a while, if you have been paying close attention: Deficit scolds actually love big budget deficits, and hate it when those deficits get smaller. Why? Because fears of a fiscal crisis — fears that they feed assiduously — are their best hope of getting what they really want: big cuts in social programs. A few years ago they almost managed to bully the nation into cutting Social Security and/or raising the Medicare eligibility age; they even had hopes of turning Medicare into an underfinanced voucher program. Now that window of opportunity is closing fast.

A few days ago I noted that, despite the enormous growth of the American economy, median household income has barely increased over the past 40 years, and has actually declined among younger households. There is, however, one group (other than, of course, the upper class) whose real income has increased substantially over that time: the elderly.

Median household income for households headed by Americans 65 and older has increased from $16,831 in 1967 to $35,611, in 2013 dollars. In the late 1960s, a large majority of elderly Americans either lived in poverty or close to it. (The current poverty line for a two-person household is $15,730). Today that bleak state of affairs has been altered drastically, largely if not exclusively as a consequence of Social Security and Medicare. These programs, born of the New Deal and the Great Society respectively, have been nothing less than fabulous successes, which is why they’re so popular.

Obviously both programs require some changes going forward, with Social Security needing some fairly modest tweaks to remain fully funded, and Medicare calling for more challenging reforms (the ACA is a good start in regard to the latter).

Progressives have been living in Nixonland for so long that it’s often easy to forget that most Americans actually like the results of Big Government (sic) just fine, at least as it’s manifested in our most expensive and important social programs.

Educational credentialing and household income: 1973-2013

[ 37 ] October 8, 2014 |

It’s well known that having more educational credentials correlates strongly with higher income. This correlation has led lots of people to make the common sense assumption that increasing the educational credentials of the population as a whole will in turn produce higher incomes. Common sense assumes, as it so often does in a naive pre-theoretical way, that correlation equals causation.

At a more sophisticated theoretical level, the assumption at work here is that enhanced credentials signal enhanced human capital. In other words, more education (or in any case more educational credentials — a distinction which is usually ignored) creates or enhances abilities in its recipients they would not otherwise have, and these abilities allow them to perform work they would not otherwise be able to do.

If we then further assume that this work would not be performed, or at least not be performed as profitably, in the absence of the enhanced abilities signaled by the credentials, then enhanced human capital increases income by ameliorating structural un-and-underemployment.

That’s why almost all of Tom Friedman’s conversations with garrulous cab drivers invariably end with him concluding that everybody needs to get an advanced degree in bio-mechanical statistics, because in a globalized flat world we can no longer afford for the average person to be average.

There is, however, a very different account of why more educational credentials correlate with higher income. In this alternate world, that correlation exists not, or at least not primarily, because the credentials signal that human capital has been enhanced, but rather because those credentials signal that the possessors of the credentials have certain valuable preexisting abilities, and/or enjoy higher class status, than those without them. To the extent this alternative account is correct, educational credentials are positional goods, which have a realizable pecuniary value precisely to the extent that they are scarce (I’m not going to address the non-pecuniary value of education here, other than to note again that the value, pecuniary or otherwise, of actual education is quite a different thing from the value of educational credentials.)

One way of testing these dueling theories is to look at what happens to incomes across time, when the percentage of a population that holds various credentials changes significantly. Of course any such comparison is going to be incomplete in all sorts of important ways. Still, it would seem that, all other things being equal, increasing educational credentials in a population should correlate strongly with increasing incomes in that population, if the human capital theory is valid.

Consider then the following (all dollar figures are expressed in constant 2013 dollars):

US GDP in 1973: $5,889,810,000,000

US GDP in 2013: $16,768,100,000,000

GDP per capita 1973: $27,790

GDP per capita 2013: $52,986

As I’ve noted before, it has been one of the curious features of cultural and political rhetoric in America for more than a generation now that even many highly educated (or in any event credentialed) people assume that the economy as a whole is stagnant, not growing, weak in comparison to the post-World War II boom times, etc. In fact, in terms of just annual economic output, (a figure which doesn’t include accumulated wealth) the country is 11 trillion dollars richer than it was 40 years ago: real GDP has nearly tripled, and even after taking into account population growth, it has almost doubled.

During this same time, the educational credentials of the population have improved almost as dramatically as the nation’s measurable economic output. Per the enhanced human capital theory, we’re getting richer because we’re getting smarter, and all that’s necessary to extend this virtuous — or at least profitable — circle more or less indefinitely is for various forms of education to become increasingly universal, until we finally inhabit a Friedmanesque Lake Wobegon, in which all the cab drivers can quote Wittgenstein, while writing ever-more elaborate computer programs in their off hours.

A look at the latest census data on household income appears to tell a very different story. Consider the following cohorts:

(a) Households headed in 1973 by people 45-54 years of age.

(b) Households headed in 1973 by people 25-34 years of age.

(c) Households headed in 2013 by people 45-54 years of age.

(d) Households headed in 2013 by people 25-34 years of age.

What sorts of educational credentials did these different cohorts possess? Here, we’ll look at the two most crucial credentials for the purpose of a population-wide analysis: high school and college degrees.

Approximate percentage of 45-54 year old adults who possessed a high school diploma or more in 1973: 50

Approximate percentage of 45-54 year old adults who possessed a bachelor’s degree or more in 1973: 8

Approximate percentage of 25-34 year old adults who possessed a high school diploma or more in 1973: 70

Approximate percentage of 25-34 year old adults who possessed a bachelor’s degree or more in 1973: 19

Approximate percentage of 45-54 year old adults who possessed a high school diploma or more in 2013: 81

Approximate percentage of 45-54 year old adults who possessed a bachelor’s degree or more in 2013: 23

Approximate percentage of 25-34 year old adults who possessed a high school diploma or more in 2013: 83

Approximate percentage of 25-34 year old adults who possessed a bachelor’s degree or more in 2013: 30

Note that most discussions of improving educational attainment focus on increasing the percentage of college graduates. Yet if more education increases income by enhancing human capital, then increasing the percentage of high school graduates should have an even stronger effect. This is because any improvement in abilities due to more education ought to be subject to diminishing marginal returns. For example, someone who goes from running 10 miles per week to running 20 will see far more improvement in aerobic capacity per extra mile run than someone who moves from running 20 to running 30. If we assume the validity of the enhanced human capital theory of education, it would be very peculiar if someone who received 13 years of formal education rather than nine did not get a greater benefit in terms of the resultant enhancement of human capital from each extra year of education, in comparison to someone who received 17 rather than 13.

With these things in mind, let’s now look at the median household income (see Table H-10) for people in these demographic cohorts.

Median household income, 45-54 year olds, 1973: $65,988

Median household income, 25-34 year olds, 1973: $55,458

Median household income, 45-54 year olds, 2013: $67,141

Median household income, 25-34 year olds, 2013: $52,702

Despite the 60% increase in the prevalence of high school diplomas, and the near tripling in the prevalence of college degrees, that took place among middle-aged people between 1973 and 2013, median household income for this demographic group is practically identical to what it was 40 years ago. Meanwhile, despite their impressive gains in educational credentialing relative to their demographic peers of four decades ago, the comparable figures for 25-34 year olds show an actual decline in median household income between 1973 and 2013.

Consider how extraordinary these figures are, given both the almost incomprehensible increase in the nation’s total wealth over the past four decades — $11 trillion dollars more per year in economic output! — and the fact that, in the US population as a whole, college degrees are today as common as high school degrees were in the 1940s.

Note too that, when considering median household income across time, the labor force participation rate is higher today than it was in the early 1970s (approximately 45% of women worked outside the home in 1973, as compared to nearly 60% today), which suggests that the same — or, in the case of 25-34 year olds, lower — median household income today relative to forty years ago is actually requiring more hours of paid labor to produce.

It would be something of an understatement to say these statistics call into question the enhanced human capital theory of educational attainment. Instead, they are precisely what we would expect to find if educational credentialing is a positional good: one whose value must invariably deteriorate as it becomes less scarce. (Currently, somewhere between a quarter and a fifth of 25-34 year old college graduates are earning less than the median high school graduate of the same age).

Meanwhile, consider what has happened to the cost of undergraduate education over this time frame (2013$):

Average Private Four-Year Non-profit College Tuition 1973: $10,783

Average Private Four-Year Non-profit College Tuition 2013: $30,094

Average Public Four-Year College Tuition 1973: $2,710

Average Public Four-Year College Tuition 2013: $8,893

(Interestingly room and board charges have also risen quite a bit, although not as drastically, from $6,200 in 1973 to $11,800 in 2013 at private colleges, and slightly less at public schools).

All this in turn suggests that more than a generation’s worth of rhetoric regarding how we must inculcate the rest of society with upper-middle class mores in regard to the value of obtaining educational credentials has ultimately harmed efforts to combat increasing social and economic stratification.

Come around tomorrow and I’ll take you again

[ 179 ] October 6, 2014 |

Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft, where we are hard, cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand.

— F. Scott Fitzgerald, “The Rich Boy” (1926)

There’s a rich tradition in American culture of celebrating wealth and the possibility of achieving it. This tradition is built upon something of a paradox: the belief that, on the one hand, rich people deserve their economic and social status because they have always had the rare personal qualities that led to their acquisition of wealth uncountable, and on the other, that you — the purchaser of this book, or lecture series, or self-improvement DVDs etc. — can now acquire these rare personal qualities, through sheer discipline and effort (and with the help of a few, very reasonably priced, authorial tips).

The whole power of positive thinking racket is based on ignoring the latent tension between these beliefs. The Gospel of Prosperity, The Millionaire Next Door, The Secret — it’s all the same grift in the end, and yet we the people never seem to tire of it. Consider this delightful specimen of the genre from Steve Siebold, author of, among other works, Problems in Kierkegaard and How Rich People Think.

The truth is successful people are confident because they repeatedly bet on themselves and are rarely disappointed. Even when they fail, they’re confident in their ability to learn from the loss and come back stronger and richer than ever.

This is not arrogance, but self-assuredness in its finest form.The wealthy have an elevated and fearless consciousness that keeps them moving toward what they want, as opposed to moving away from what they don’t want. This often doubles or triples their net worth quickly because of the new efficiency in their thinking. Eventually they begin to believe they can accomplish anything, and this becomes a self-fulfilling prophecy. As they move from success to success, they create a psychological tidal wave of momentum that gets stronger every day, catapulting their confidence to a level so high it is often interpreted as arrogance.

The ideological function of this sort of hokum is fairly clear. What’s less clear, perhaps, is what continues to make it so attractive, in a culture in which the increasingly vast differences in life circumstances between people born into different classes ought to make the concept of some sort of pseudo-Darwinian meritocracy increasingly implausible.

Tales from the New Gilded Age: IOC Edition

[ 154 ] October 2, 2014 |

Oslo is dropping out of bidding for the 2022 Winter Olympics, leaving Almaty, Kazakhstan and Beijing as the only remaining cities seeking to host the event. Why? One reason is that people are starting to realize that spending mega-money to build sporting venues that may not ever be used again doesn’t make economic sense. Another is that the International Olympic Committee is a notoriously ridiculous organization run by grifters and hereditary aristocrats. Norwegian citizens were particularly amused/outraged (amuseraged) by the IOC’s diva-like demands for luxury treatment during the hypothetical Games. Here’s a piece in the Norwegian media about the controversy, with translation provided by a generous Norwegian reader named Mats Silberg:

They demand to meet the king prior to the opening ceremony. Afterwards, there shall be a cocktail reception. Drinks shall be paid for by the Royal Palace or the local organizing committee.

Separate lanes should be created on all roads where IOC members will travel, which are not to be used by regular people or public transportation.

A welcome greeting from the local Olympic boss and the hotel manager should be presented in IOC members’ rooms, along with fruit and cakes of the season. (Seasonal fruit in Oslo in February is a challenge…)

The hotel bar at their hotel should extend its hours “extra late” and the minibars must stock Coke products.

The IOC president shall be welcomed ceremoniously on the runway when he arrives.

The IOC members should have separate entrances and exits to and from the airport.

During the opening and closing ceremonies a fully stocked bar shall be available. During competition days, wine and beer will do at the stadium lounge.

IOC members shall be greeted with a smile when arriving at their hotel.

Meeting rooms shall be kept at exactly 20 degrees Celsius at all times.

The hot food offered in the lounges at venues should be replaced at regular intervals, as IOC members might “risk” having to eat several meals at the same lounge during the Olympics.

See the link for the IOC’s more-in-sorrow-than-in-anger response.

The Michigan football mess

[ 195 ] September 30, 2014 |

Updated below.

On Saturday, Michigan’s beleaguered football coach Brady Hoke decided to start sophomore Shane Morris at quarterback against Minnesota, over fifth-year senior and long-time starter Devin Gardner. In the first half, Morris was very ineffective against a weak team over whom Michigan is favored by double digits, despite the Wolverines’ poor play this season.

Early in the third quarter, Morris injures his ankle. His play goes from ineffective to catastrophic, as the injury appears to grow progressively worse. By early in the fourth quarter, Morris’ mobility seems seriously compromised, yet Hoke makes no move to replace him with Gardner. With about 11 minutes left to go in the game, Morris is subjected to vicious helmet to helmet cheap shot a full second after throwing yet another wild pass downfield.

(The key sequence starts at around 2:30 in the video).

The 80,000 or so remaining fans in the stands and a national TV audience see Morris wobble back toward the huddle, and then appear to be kept from collapsing to the turf by an offensive lineman, who props him up while other players in the huddle signal frantically to the bench, apparently in an effort to get Morris pulled from the game before he suffers yet more serious injuries to his brain. The coaching staff appears to ignore these gestures; in any case Morris runs another play. At this point Michigan’s offensive coordinator starts signaling to Morris to go down to the ground, probably to give the disorganized Michigan sideline enough time to finally put Gardner in the game without incurring a delay penalty.

In any case Gardner enters, and 90 seconds later (in real time) loses his helmet while scrambling. Under college rules he has to leave the game for at least one play unless Michigan uses a time out. Instead of using a time out, the staff tries to insert third string QB Russell Bellomy, but Bellomy can’t find his helmet. Someone then decides to send Morris back into the game instead of using a precious time out (Michigan trails by 23 at this juncture and the game is effectively over). Morris goes in, hands off, and then is replaced by Gardner again, who promptly leads the team down the field for a TD, incidentally producing more offensive effectiveness in one drive than Morris was able to generate all afternoon.

During all of this sequence much of the crowd has been booing loudly, in protest of the recklessness of keeping an obviously injured and probably concussed Morris in the game. Even the usually docile announcers on ESPN express something like outrage and disgust.

After the game, Brady Hoke is asked why he didn’t take Morris out, given the ample evidence that the sophomore QB, who celebrated his 20th birthday last month, had suffered a concussion. This was Hoke’s answer:

I don’t know if he had a concussion or not, I don’t know that. Shane’s a pretty competitive, tough kid. And Shane wanted to be the quarterback, and so, believe me, if he didn’t want to be he would’ve come to the sideline or stayed down.

This response helps fuel a firestorm of criticism, to the point where by Sunday evening the story is being reported in the national news media.

Meanwhile, some time between the end of the game and at some point on Sunday (more on the timing of this below), Morris is officially diagnosed as having suffered a concussion by the Michigan medical staff. Remarkably, at his lunch time press conference on Monday, Hoke appears not to be aware of this, even though:

(a) The team practiced on Sunday, and it’s standard for the coaching staff to receive injury reports from the trainers and medical staff after a game and prior to the next practice; and

(b) Hoke acknowledges speaking with Morris on both Sunday night and Monday morning, prior to the press conference.

Hoke says that as far as he knows Morris only suffered a high ankle sprain, and if not for that sprain he would have practiced on Sunday with the rest of the team. He also says he hasn’t spoken, at all, to Michigan’s athletic director Dave Brandon, at any time since the incident, even though the incident has now been a national news story for almost 24 hours, and Brandon normally reviews film of Saturday’s game with the coaching staff on Sunday morning.

Finally, at 1:30 AM this morning, Brandon — a multi-millionaire former CEO of Domino’s Pizza, former Michigan regent, and prospective GOP candidate for Michigan’s governorship — releases a statement admitting that “as of Sunday” Morris had been diagnosed as suffering what Brandon termed a “mild” concussion, and that Hoke’s apparent ignorance of this at the Monday press conference was due to a “mis-communication.”

Later this morning, Brian Cook and John Bacon, two journalists with various sources inside the Michigan AD, separately imply strongly that Brandon spent much of the time between Sunday and Tuesday morning trying to strong-arm the Michigan medical staff into covering up, or at least soft-pedaling, their diagnosis that Morris had suffered a concussion before he was sent back into the game.

Some questions:

(1) When was Morris diagnosed with a concussion? Brandon’s middle of the night statement is phrased in a suspiciously weasel-like way on this point, noting that “as of Sunday” Morris was determined to have been concussed. This phrase sounds loaded with truthiness, as surely Morris would have been examined for a concussion immediately after the game by medical personnel — he was taken off the field and into the locker room on a cart — and if he was diagnosed on, as opposed to “as of” Sunday, why not just say that?

(2) When precisely did Brandon find out Morris had suffered a concussion? Did he have any contact at all with his head football coach between that moment and the Monday press conference? If not, why not?

(3) Did Brandon, or anyone else associated with the athletic department, attempt to influence any aspect of the medical report regarding Morris’s injuries?

(4) Did Hoke attempt to contact anyone, either in the AD or among the medical personnel, about Morris’s condition prior to the press conference? If not, why not?

(5) What does this previous incident tell us about Hoke’s attitude toward his players?

Ball State reprimanded two coaches after a football player suffered frostbite during a disciplinary workout in subzero temperatures.

Ball State’s athletic director issued letters of reprimand to head coach Brady Hoke and football strength and conditioning coach Aaron Wellman [Wellman now holds the same position at Michigan] after the workout, associate athletics director Joe Hernandez said Friday.

Redshirt freshman receiver Chris Jackson suffered frostbite to several fingers during the 40-minute workout Jan. 31, Hernandez said. Jackson recovered following medical treatment and has returned to workouts.
During the Jan. 31 workout, Jackson and several teammates carried a 25-pound sandbag up and down steps at the school’s stadium, athletic director Bubba Cunningham said.

(6) How long is it going to take for the university’s president and regents to fire Brandon and Hoke?

. . . see also Jon Chait for more background on Brandon’s history of megalomania, and the perennial stupid/evil epistemological puzzle.

Update: Students march on the president’s house. The whole world is watching . . .

Mysteries of depression

[ 181 ] September 26, 2014 |

Four years ago, one of the best students I’ve had in 24 years of law teaching killed himself, a year to the day after graduating. This suicide, and what I eventually discovered about the events that led to it, played a key role in pushing me toward first educating myself regarding, and then trying to do something about, the law school crisis.

One thing I learned is that depression is apparently epidemic among both law students and lawyers. As I’ve written elsewhere:

(1) Law students are no more prone to depression than anyone else before starting law school. In the course of law school they develop both clinical and sub-clinical depression at extraordinarily high rates, so that by the time they are 3Ls they are roughly ten times more likely to be in these categories than they were prior to entering law school.

(2) Rates of depression among practicing attorneys are also very high. For instance, a 1990 Johns Hopkins study looked at depression in 104 occupational groups. Lawyers ranked first.

(3) These findings are remarkably consistent across studies, and have remained so for several decades.

(4) Although there is as of yet little work on what effect recent changes in the legal profession are having on these outcomes, the primary environmental cause of depression appears to be stress, which suggests an already serious problem is likely to be getting worse.

Why are law students and lawyers so prone to develop depression? The literature suggests numerous causes, most of which have something to do with the effects of an intensely hierarchical, competitive, emotionally cold, and high-stress environment, in which people are socialized to obsess on external status markers and to minimize or ignore things such as learning for its own sake, doing intrinsically valuable work, and maintaining healthy personal relationships.

Depression is a mysterious disease, and for me that mystery was if anything deepened by reading recently William Styron’s Darkness Visible: A Memoir of Madness, his harrowing account of how an episode of deep depression took him to the brink of suicide. Styron’s account is both powerful and eloquent, but ultimately it left me with more questions than answers about this terrible illness. One very useful aspect of the book, for me, was that it conveyed what an inadequate and ultimately misleading word “depression” is to describe the phenomenon, at least in its more ferocious forms.

“Melancholia” would still appear to be a far more apt and evocative word for the blacker forms of the disorder, but it was usurped by a noun with a bland tonality and lacking any magisterial presence, used indifferently to describe an economic decline or a rut in the ground, a true wimp of a word for such a major illness. It may be that the scientist generally held responsible for its currency in modern times, a Johns Hopkins Medical School faculty member justly venerated–the Swiss-born psychiatrist Adolf Meyer- -had a tin ear for the finer rhythms of English and therefore was unaware of the semantic damage he had inflicted by offering”depression” as a descriptive noun for such a dreadful and raging disease. Nonetheless, for over seventy-five years
the word has slithered innocuously through the language like a slug, leaving little trace of its intrinsic malevolence and preventing, by its very insipidity, a general awareness of the horrible intensity of the disease when out of control.

As one who has suffered from the malady in extremis yet returned to tell the tale, I would lobby for a truly arresting designation.

“Brainstorm, ” for instance, has unfortunately been preempted to describe, somewhat jocularly, intellectual inspiration. But something along these lines is needed. Told that someone’s mood disorder has evolved into a storm- -a veritable howling tempest in the brain, which is indeed what a clinical depression resembles like nothing else-even the uninformed layman might display sympathy rather than the standard reaction that “depression” evokes, something akin to “So what?” or “You’ll pull out of it” or “We all have bad days.” The phrase “nervous
breakdown” seems to be on its way out, certainly deservedly so, owing to its insinuation of a vague spinelessness, but we still seem destined to be saddled with “depression” until a better, sturdier name is created.

For someone who, at least until now, has been lucky enough to ponder serious depression strictly from a distance, but who wants to understand it as best he can, Styron’s book was both of great value, and a spur to try to learn more. I’d appreciate any suggestions commenters might have regarding other resources for helping to encourage a qualitative, as opposed to a merely statistical, understanding of this illness.

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