Wednesday, March 14, 2012

Pearls for swine

The New York Times has published an interesting op-ed by Greg Smith, a soon to be former director of the investment bank Goldman Sachs.  The gist of the piece is that the bank has fallen away from its historical roots to become dominated by what Smith believes is a corrupt culture, which at every turn encourages its employees to put the bank's profit margin above the interests of its clients.

I know nothing about investment banking, let alone about changes in the institutional culture at Goldman Sachs, so I have no way of judging the extent to which Smith's criticisms are accurate.  I do know something about legal academia, and am struck by the parallels between what the writer claims has happened at his employer and what I've seen happen to American law schools.

For example I remember a faculty meeting at Colorado that took place around 1995 or so, at which a senior professor -- someone who had been there for about 25 years -- aired his concerns about rising tuition. We needed, he said, to stop taking so much "out of the hides of the students."  What he had witnessed was a rise over the previous 15 years in resident tuition from $980 to $4400 in nominal dollars ($2700 to $6300 in 2010 dollars).  The other thing I remember about his remarks is that it was the last time I heard anybody in a faculty meeting, including myself, say anything even vaguely critical about tuition hikes until 15 years later, when resident tuition surpassed the $30,000 mark.

Why did the people running Harvard Law School charge $6300 in tuition in 1981 ($15,600 in 2011 dollars) when they could easily have charged two or three or indeed five times that and still filled their class with bright young people who would go on to make fine lawyers?  The superficial answer is that they didn't because Yale wasn't doing that (this kind of explanation reminds me of the famous metaphysical joke about turtles).  A more nuanced answer would include observations about having some sense of social responsibility, not to mention shame.

Over the course of the last generation, social responsibility and shame have been defenestrated in favor of profit maximization (or, in the largely "non-profit" context of higher education, revenue maximization).  Harvard has tripled its tuition for the same reason Colorado has increased its price tag by 1,053% in real terms: because (a) they could; and (b) because they -- we -- lost pretty much all sense that one had to have a better reason than this for grabbing everything we could get our hands on that wasn't nailed down.

In the world of investment banking this same development has a very straightforward ideological justification, which is that being a pig is good for society. Indeed Smith's criticisms of Goldman Sachs don't really move outside that paradigm, since they add up to the claim that being too much of a pig is bad for porcine well being: his argument seems to be that the problem with ripping off your clients is that they'll eventually figure out you're doing so, which of course would be bad for business.  The notion that ripping people off even if you could get away with it in the long run would still be wrong is apparently too radical of a thought to be uttered within the halls of Goldman Sachs, even if one is in the act of going permanently out the door.

In the world of legal academia, the ideological justification for "revenue maximization" must naturally be somewhat more obscurantist than the uncomplicated claim that individual greed redounds to the benefit of society as a whole.  Hence we hear much about how very expensive a "first-rate" legal education has become in an ever-more complex global economy, in which we must train future attorneys to structure multinational business transactions conducted simultaneously in English, German and Mandarin.

But in both cases the basic ideological function of the standard theory is the same: to convince people that flagrantly self-interested behavior is actually altruistic.  On the one hand, this claim seems rather dubious on its face. On the other, for what ought to be obvious reasons it isn't exactly hard to get those who are profiting from its acceptance to find that theory remarkably plausible.

48 comments:

  1. Hasn't Yale increased its class size since the early eighties from 135 to about 210?

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  2. Dear Lawprof:

    This article reflects a lot of what you say:
    http://thepeoplestherapist.com/2012/03/14/an-aspirational-purchase/#more-3842

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  3. The best part of my day is when I click refresh on this website and see a new article.

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  4. Greed, for lack of a better word, is good.

    I wonder who are the Gordon Gekko's of the legal academic world.

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  5. "because (a) they could; and (b) because they -- we -- lost pretty much all sense that one had to have a better reason than this for grabbing everything we could get our hands on that wasn't nailed down."

    That is the crux of the issue. It's simple greed. Nothing more, nothing less. For the boomer generation, which is running these establishments and has been running them for decades now, it's all about greed.

    My concern is that the boomers have now so permanently engrained greed into these institutions that they will never be able to change, or deconstruct back into institutions of higher education rather than institutions of "grabbing as much as I can just because I can".

    And this concern goes further into US society as a whole: has the boomer generation well and truly milked it to the point that it will never return to anything more ethical, concerned about the greater good, or living to standards higher than striving for stupidly-sized houses and luxury cars.

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  6. "the standard theory is the same: to convince people that flagrantly self-interested behavior is actually altruistic. On the one hand, this claim seems rather dubious on its face. On the other, for what ought to be obvious reasons it isn't exactly hard to get those who are profiting from its acceptance to find that theory remarkably plausible."

    This describes what you're doing just perfectly...keep on being "altruistic" from your tenure-protected tower while you collect your blood money.

    You're not quite as bad as the others who AREN'T speaking out, I think. Then again, you may have another self-interested motive in addition to any altruistic motive you have for speaking out. Let's just say I wouldn't put it past a decades long law professor to have more motives than he lets on in the public forum.

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  7. 8:55 is a dick.

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  8. 8:24,

    I think a number of those boomers are still supporting their college-grad kids because they can't find a job.

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  9. Well, other than 8:55's negative post (albeit maybe one that is crouched in legitimate concern), I am uplifted by such articles out today. But, back here in flyover country, here is what passes as news:

    http://www.tulsaworld.com/news/article.aspx?subjectid=19&articleid=20120314_11_A11_Tookao725858&allcom=1#2928238

    "good value". Christ (a pun?). Makes me want to throw up.

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  10. This is a great post. Sums up exactly why I think the "USNEWS made me" defense is just a red herring. Getting rid of USNEWS won't make the problem go away. If anything, it will funnel more money into the hands of admins and profs and less into the hands of scholarship students (who are already being subsidized by other students.) There will just be some other excuse.

    I never lived through a time when the discourse in this country ever centered around "is this the right thing to do?" Now, every argument has to be couched in self-interested terms. Yes, lowering tuition is the right thing to do so students won't come out of law school with 200K of debt, BUT, you should do it because more high scoring, price-sensitive LSAT/GPA students will attend your law school, or the reputation you earn will benefit you in the long run.

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  11. Very interesting to note the similarities between the mentalities of law profs and i-bankers. I remember a decade ago when I was just starting Harvard law. There were quite a few characters in my class, but I only remember one guy who was dead set on becoming a law prof. Asked him why. He said, "I discovered being a law prof if like getting on the gravy train..." Those words "gravy train" stuck with me, since they seemed so strange to me at the time. That and the fact that this guy seemed to be morally bankrupt. He was joking to me about how he had to convince the computer company to give him a new laptop, and they kept saying he had dropped it, which he adamently denied. "Well of course I dropped it", he told me, but he was very proud to have lied his way into a new laptop. I'm sure he's somewhere living the dream and indoctrinating some wannabe lawyers. Don't see him or his ilk trying to stop the law school scam anytime soon. Me, I'm still hanging in biglaw, but wondering if I'd have to take a 90% pay cut to get out, and feeling like the real gravy train has most definitely passed me by...

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  12. This post doesn't make much sense to me.

    HYS could increase their tuition by 50% tomorrow and face few consequences. Why don't they? Is it because they have a sense of social responsibility and shame? No. Rather, it's because tuitions are set mostly by the central university, and the central university tends to favor a roughly uniform system in which tuitions are roughly the same for all programs. Pick a program at a major private university -- ANY DEGREE -- and the tuition is going to be around $45,000 a year. It seems odd to think that the tuitions at law schools are some special case; the tuitions are what they are precisely because they're not a special case.

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  13. http://divinity.duke.edu/admissions/tuition

    http://www.law.duke.edu/admis/tuition

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  14. Because we can pretty much sums it all up.

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  15. @9:14 University of Pennsylvania 2010 tuition
    Undergrad $34,868
    Law $43,600
    Dental Medicine: $62,250
    http://www.archives.upenn.edu/histy/features/tuition/2000.html
    Yep. They are all the same

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  16. Here's a six-week-long educational program offered by Stanford's business school that costs $58,000. (Room and board are included).

    http://www.gsb.stanford.edu/exed/sep/

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  17. "We're all monsters in our subconscious. That's why we have laws and religion."

    We still have laws. But we don't have much in the way of religion.

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  18. Would be interesting to compare faculty and administration salaries (including forgiven loans) over the same time period.

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  19. No, not just "we pretty much can." They can because they have access to $$ in the form of government backed non-dischargeable loans. Perhaps HYS might be able to maintain the current rate of tuition but the vast majority of schools could not.

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  20. This comment has been removed by a blog administrator.

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  21. When the easy money dried up, housing prices took a tumble. Take away the easy money (in the form of federal loan dollars) and you would see a dramatic decrease in tuition - particularly at non-elite schools.

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  22. In the world of investment banking this same development has a very straightforward ideological justification, which is that being a pig is good for society.

    Well, that's what utilitarianism and legal realism get you. People who are strong on justifying their druthers and weak on any sense of moral responsibility.

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  23. Left alone in a dark room with a huge pile of student loan money, law professors chose to pay themselves outsize salaries to navel gaze. That, and build shiny new monuments to their egos.

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  24. @9:14 I am sure all that happened just the way you say it did.

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  25. Lawprof,
    I've always been curious why you use full sticker price when comparing the cost of tuition rather than the weighted average of what students are paying. Just seems like that would more accurately measure how much costs have increased (which I'm sure is still by a lot).

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  26. It's not surprising that a putrid,spoiled mentality exists. After all, a large percentage of LS deans, admins and prawfs have been on a well-lubricated upward trajectory from their cradles. Without adversity, want or sacrifice--decay often sets in. "We the people," is entirely an abstraction to these perps.

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  27. It would interesting to compare financial aid packages between then and now.

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  28. I laugh whenever I see "law professors" making $240K per year referring to themselves as "public servants."

    In a way, it further shows that these academics are out of touch. (Not Willard Romney level of disconnect, but alarmingly close.) The average person recognizes that bus administrators raking in $310K annually, or congressmen somehow making $165K per year who suddenly have a net worth of $8 million, are not public "servants."

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  29. 9:58: The weighted average of what students are paying isn't public information, and has also changed rapidly over the course of the last few years (cross-subsidized "scholarships" barely existed if at all at most schools until very recently). Also, the worst victims of the current system are the approximately half of all students who pay sticker, and who subsidize the educations of their classmates, in what has been accurately labeled a reverse-Robin Hood scheme.

    But it's true that as this system continues to fall apart the relationship between sticker price and real tuition will become increasingly unreal, as schools cut tuition without announcing the fact (for instance last year 100% of Illinois' entering class got "scholarships" of some sort).

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  30. For non-residents, annual tuitions this year at the University of Colorado are:

    MBA: 28,800
    Undergrad Arts& sciences: 28,800
    Undergrad Engineering: 31,300
    Undergrad Business School: 32,400
    Law: 35,600
    Graduate Arts & Sciences: 25,500
    Journalism: 29,100

    http://www.colorado.edu/pba/budget/tuitionfees/tuitfee.HTML

    There are differences -- although they generally are pretty narrow.

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  31. Also, the worst victims of the current system are the approximately half of all students who pay sticker, and who subsidize the educations of their classmates, in what has been accurately labeled a reverse-Robin Hood scheme.

    By helping me realize this, LawProf has saved me money, since I no longer donate to my LS (where I paid full-freight in the 90s).

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  32. Resident tuition and fees, CU undergrad: $8,594

    Resident tuition and fees, CU law: $31,115

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  33. I have two responses to the comment made by 9:14.

    1) Most other graduate programs are heavily subsized. Indeed, almost any Ph.D track program at a major University is literally free (full tuition waiver plus living stipend, usually conditioned on a TA job). So there is nothing even approaching uniformity in what a student at the same University will pay for an academic degree vs. a law degree.

    2) Any criticism leveled against law schools can to some degree be leveled against Universities as a whole, which have consistently increased tuition over the last generation for all students that actually pay tuition. The University as whole is not immune to the greed motive, and to the extent University administrators collaborate with law school administrators to raise tuition it is in the nature of a price fixing conspiracy among mutually-benefited parties. Needless to say, I don't think that excuses the law-school side of the conspiracy.

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  34. Lawprof,
    I wasn't aware that cross-subsidized scholarships were a recent event so thank you. Understood regarding public information, although I thought DJM made a comment once that average tuition paid was available via the paid section of USNWR? I could very well be mistaken so feel free to correct me if I'm wrong.

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  35. The ABA Guide lists the percentage of students getting grants and the median size of those grants. From that one can make a (rough) calculation of average tuition paid, which tends to be around 80% of sticker at most schools.

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  36. Found it! DJM's comment on March 2, 2012 at 2:37 PM. USNWR does have something but it doesn't provide the mean which is what we would need.

    So, even borrowing from DJM's analysis, weighted average tuition per student would be $37,577. Worth noting I suppose, but a drop in the bucket of skyrocketing costs compared 1981 tuition in 2011 dollars.

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  37. "Also, the worst victims of the current system are the approximately half of all students who pay sticker, and who subsidize the educations of their classmates, in what has been accurately labeled a reverse-Robin Hood scheme." and having 25-30% of their tuition given to their universities to subsidize undergraduate and other graduate programs. I wonder how much of our tuition actually goes to our education. Maybe instead of the government giving out student loans like candy, they should stop these practices. This would help minorities and the poor more than burdening them with a lifetime of loans.

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  38. There's always greed. The only way to curb it is transparent competition. To a certain extent all businesses are conspiracies against their customers, the more so if they're allowed to set one price and stifle upstart competitors. If the HYS pricing umbrella isn't an oligopoly don't know what is.

    Fancy schools in general are really proxies for intelligence and they kicked the most serious competition to the curb back in the early 70's when it became illegal to give prospective employees IQ tests. And now the law of unintended consequences has produced an opaque cloud of credentialism with kids desperate to get into HYS as they only way to prove they're worthy.

    The answer is to open it up. As a prospective employer maybe I mostly care about the LSAT or SAT or IQ. Why can't I see that? Forget HYS, just let me give them an IQ test. Or maybe if I don't have to subsidize huge salaries needed to pay off outrageous debt I can take on a kid with not so high LSAT scores who's a plugger or charming or whatever. Set up an apprentice system so I can train them on the job. Make law school optional and let anybody sit for the bar. Sounds like bar prep courses are more effective anyway. More competition fixes the problem and breaks the big law monopoly.

    If you read Clayton Christensen on innovation, when a business is at peak profitability as law schools now are is when they are most vulnerable and cheap competition invariably comes in to supplant them. It's already happening. Law has dropped from 2% of GDP to 1.3% over the last couple decades and that's just the start as IBM's Watson, ofshoring etc. really ramp up. Peel away the blue blood veneer and the product is being standardized and commoditized. It's part of the second wave of globalization that is now swamping all the professions.

    But greed is inherent in our stratified legal system. Back in the 80's I was a big law paralegal on the MCI vs. ATT case and I started at $6.25 an hour (about what I was worth) while my law firm charged my time out at $45 an hour as well as hitting up MCI for all our satellite office expenses. Turns out the altruistic lawyers were the most ruthless businessmen in the world. Why did they do it? Not ideology. Because they could. Just human nature. They were HYS so they could dictate terms. Absolute power corrupts absolutely.

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  39. @9:56 What's to doubt? There are plenty of HYS folks out there. Contrary to popular belief, we don't all just "live happily ever after" after graduation.

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  40. Also, the worst victims of the current system are the approximately half of all students who pay sticker, and who subsidize the educations of their classmates, in what has been accurately labeled a reverse-Robin Hood scheme.

    I know of one law school which started a part-time night program a few years ago so they could have more 'victims' for this scheme. they ended the program when they realized that someone had to teach at night. unfortunately, payback's a b#tch. this is one of the law schools that got sued. ouch.

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  41. For CU Boulder you need to add $2,960 in fees per year (2 semesters.)

    CU has one of the biggest cost spreads between Resident and Non-resident undergraduate tuition/fees. Because of its location, it has a very high portion of out-of-state students. There appear to be many out-of-state kids from very well off families.

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  42. Is CU Law School a “Trap School” because of its location in Boulder, CO?

    For those of you that have never been to CU Boulder, it is one of the most beautiful campuses in the country. It is right up against the mountains and has wonderful skiing and summer recreation. The town itself is upper end and “progressive”. On top of this, Boulder is now part of the extended Denver area (it is 25 miles to downtown Denver) with all of the amenities of a large metro area.

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  43. LawProf: You have commented extensively on the cross subsidization scheme called "merit scholarships." Have you ever looked into "need based" scholarships at law schools? I admit I know nothing about it at the law school level but at the undergraduate level it has evolved into a price discrimination scheme in which hardly anyone pays the same amount, no one knows what anyone else is paying and the schools can skin each customer to the limit of his or her ability. Rockefeller never had it so good.

    RPL

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  44. RPL: Need-based scholarship aid is rare to non-existent at all law schools not named Yale, Stanford, or Harvard.

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  45. LawProf: Thanks. Makes sense. All that federal loan money makes price discrimination unnecessary.

    RPL

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  46. @11:35- I know there are lots of HYS folks out there, and I know for a fact that we don't all live happily ever after. It just struck me as odd that a classmate would actually say, with any degree of seriousness, that he or she was going to become a professor and get on "the gravy train". As a joke, maybe. A serious person might say that, but would not couch the desire in terms of being on a gravy train. They'd express loftier motivations. A person joking, well, would be joking. Then the story about the computer is there to add special emphasis to his alleged moral depravity. And you don't know whether that person became a prof, which would be easy to know. It just sounds too conveniently tailored for this blog. If I'm wrong, I apologize.

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  47. Apology accepted. I'm pretty sure he wasn't joking about his intent at the time, but I just looked him up and he's currently in biglaw too. Now, I don't feel quite so bad. If we had gone to Yale, maybe we'd have had a better shot at the gravy train...

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  48. I have to disagree about the need based scholarships. I was offered 1/3 need scholarships at both Columbia and Georgetown. Of course this was not sufficient to keep me out of massive debt for the rest of tuition/living expenses, but only to say that they do exist.

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