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The nature of capitalism

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Stephen Diamond provides a free lecture on the nature of capitalism:

[I]t is more likely that Stanford grads will earn substantially more than Colorado grads. And that makes it far more likely that Stanford will earn back substantially more from those grads than Colorado. That means from the standpoint of the Stanford board of trustees – who have a fiduciary obligation to the institution – it is perfectly rational to spend twice per capita at their law school than they do at Colorado. Anecdotal information suggests their calculation makes perfect sense – it’s why they have one brand new building named after alum William Neukom, former Microsoft general counsel, and another named after Charlie Munger, business partner of Warren Buffet and father of a Stanford Law School alum, while Colorado struggled for years – to the brink of putting their accreditation at risk – to come up with the funds for a new building. (Granted, when they got it built it was pretty spectacular.)

It strikes me as odd that someone once feted at the Cato Institute as the “bad cop” of law school reform (do his colleagues at the allegedly left wing site Lawyers Guns and Money care where he spends his spare time?) seems to have a very weak grasp on the nature of capitalism but there you have it. Stanford makes money from its law school. It does not lose money. It invests in its physical plant and in its human resources calculated against the potential of making money off of that investment. Of course Stanford is an educational institution, a non-profit entity, so it does not and should not look for ways to merely maximize its earnings. But it certainly is not going to engage in activities that throw away the tuition dollars and donations it receives.

Diamond seems to have a weird fetish — he’s mentioned it numerous times — about the fact I took part in a panel discussion on the future of law schools (with Brian Tamanaha) at Cato a couple of years ago, as if that is somehow intellectually or morally problematic, although of course he doesn’t say why. (Note that Diamond actually blocks some people who have posted critical comments about his writing from even reading his blog, so his commitment to open debate is shall we say less than inspiring.)

The argument that the trustees of Stanford have a fiduciary obligation to engage in aggressive rent-seeking because of “the nature of capitalism” doesn’t require any comment.

Speaking of capitalism, here’s a nice example of what just a little bit of informational transparency can do to even a very heavily subsidized and otherwise distorted market:

Applications to Santa Clara’s law school:

2010: 4,959

2013: 2,598

Here’s an example of cartel pricing at work:

Stanford Law School tuition in 1999: $26,358

Santa Clara Law School tuition in 1999: $22,000

Stanford Law School tuition in 2013: $52,530

Santa Clara Law School tuition in 2013: $45,000

(Taking tuition discounts into account, effective tuition — sticker minus discounts — at Stanford appears to be slightly lower than at Santa Clara, with the respective figures for 2013 being around $39,000 and $40,000).

Here’s an example of what happens when your school’s median LSAT is 157 instead of 171:

Percentage of 2013 grads with federal clerkships:

Stanford: 29.4%

Santa Clara: 0%

Here’s an example of a school lying egregiously about whether its graduates without jobs actually want jobs, and then ceasing to lie about this when it’s no longer advantageous to do so, i.e., when the law school rankings start counting graduates who are unemployed and supposedly not seeking employment as simply unemployed, as opposed to removing them from the denominator when calculating a class’s employment rate:

Total unemployed Santa Clara graduates nine months after graduation in 2011: 61 of 305

Total of these unemployed graduates Santa Clara claimed were not seeking employment: 55

Total unemployed Santa Clara graduates nine months after graduation in 2014: 58 of 322

Total of these unemployed graduates Santa Clara claimed were not seeking employment: 1

Etc.

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