ROI for Law School

Probably many readers have seen this New York Times article, offering a lengthy and well-reported analysis in the Business Pages by David Segal of whether law school is a worthwhile investment.  The analysis points to a couple of different factors, including:

  • supply of lawyers outstripping demand, now and into the future;
  • cost of legal education outstripping the ability to repay on most lawyers’ salaries;
  • oversupply of law schools (leading to oversupply of lawyers, but in fact contributing its own frictions in bringing supply and demand to clear);
  • huge information gaps making it difficult at best for would-be students to make a decision;
  • inaccurate and gamed information supplied by law schools on employment and salaries of graduates.

The article traces through several law grads, with a particular focus on a graduate of Thomas Jefferson law school in San Diego, who has racked up several hundred thousand dollars in debt – if he were paying the monthly payments, they would be around $3,000 a month, if I recall the article correctly.  He himself says that he’s not so good at keeping track of that sort of thing.  The debt is not dischargeable in bankruptcy, so he and his girlfriend have simply gone off the employment or any other kind of income grid, pretty much.

A lot of readers of the article will be unimpressed with the young man’s cavalier attitude both to running up the debt – including on remarkably idiotic things, like trips abroad – and to repayment at all.  But while we all should take a lesson – I for one take a deep breath and hope that my own kid would not make these kinds of mistakes – there’s also a fact that it was only in the last two years or so that the vast majority of middle class people would have had any real question either about the ability to repay the debt or, more fundamentally, that more education was automatically a good thing.  More human capital investment, good, and professional education like law, better still.  It is only in the last two years, frankly, that very many of us – I include myself – have been thinking about higher education ROI.  I’m not at all sure that we can hang it on some admittedly not so bright kid for going with the assumptions that all the rest of us have gone with.

As I’ve noted in some earlier posts about 21st century jobs, there’s also something quite dismaying in the fact that, for the first time I can remember in my adult life, we seem to be concluding that investment in human capital is not worth it.  That might be true because the training is idiotic and not really “human capital investment” at all, but more like summer camp.

But the much more worrying possibility is that structural problems in the US economy mean that there isn’t a need for professionally skilled labor, because the economy can’t deploy people to these higher skilled tasks.  In the case of lawyers, or people who might have become lawyers, that might be because capital has been wasted in pointless things that didn’t pay off, and now there isn’t enough capital to invest in new things for which lawyers – yes, even lawyers – would be useful in making happen.  It can, and certainly has, happened to engineers, too, over the past fifty years.

To the extent that is a structural, rather than cyclical, new normal for the economy, that is dismaying and disheartening.  One can say that in that case, deploying would-be lawyers or, for that matter, engineers, into subsistence farming is, under those conditions, the most efficient available deployment of their labor.  But of course that would be true by definition.  The wastage compared to a better organized economy is enormous and finally tragic.

That is true, by the way, of the young man featured in the story.  He might be a genial idiot, when it comes to practicalities, but it does seem unlikely that even his talents, impressive or meager as they might be, are best deployed in our economy trying to avoid doing anything that earns any money, because of an unsustainable debt load.  From a social welfare perspective, his human capital is mis-deployed – while also being true that the moral hazard of a massive bailout of misplaced expectations of student loans is disastrous, quite apart from the cost.  It’s striking in the article that waiting for a political fix to his problems seems to be his overall strategy.  That’s scary all by itself.

However, it was finally this comment that attracted my attention from the standpoint of teaching law and economics to law students: consider the ways in which this statement is not quite right:

“Law school might not be worth it for another 10 or 15 years,” he says, “but the riskier approach always has the bigger payoff.”

Critique the last half of that statement.