The Legal Profession and the Case for Fundamental Reform: Introduction

I am grateful to Eugene Volokh for inviting me to post a series of blogs based on my Brookings book with David Burk and Jia Yan, Trouble at the Bar: An Economics Perspective on the Legal Profession and the Case for Fundamental Reform (hereafter Trouble at the Bar). In this introductory post, I provide some background about me, motivation for the book, and an overview of the remaining posts in the series.

I am an applied microeconomist interested in assessing the efficacy of markets and government intervention to enhance social welfare. I have conducted several assessments with colleagues that document both the vast inefficiencies from government regulations to address alleged market failures in the US transportation sector as well as the benefits from allowing markets, through deregulation, to solve many of their own problems.

The conventional view is that government regulations of prices and market entry and exit created inefficiencies in the process of redistributing income from consumers to producers. However, I came to learn that the larger costs of government regulations were dynamic; that is, they suppressed innovative activity by firms and consumers for decades that could have enhanced efficiency and spurred economic growth.

By contrast, instead of transferring wealth back from producers to consumers, transportation deregulation produced win-win outcomes. For example, air travelers and rail shippers as well as the airline and railroad industries benefited from deregulation. This was surprising, because observers did not predict that innovations in operations, utilization of equipment, and pricing that had been stymied by regulation would substantially improve industry efficiency, and that greater competition would transfer a significant share of the efficiency improvements to consumers in lower prices and better service.

Living and working in the Washington, DC area exposes me to the enormous influence of the legal profession on public policy. Trouble in the Bar notes that the legal profession lays claim to an entire branch of government, the courts; more members of Congress are lawyers than any other occupation; and since 1789, more than half of the nation's presidents, vice-presidents, and cabinet members have been lawyers. Even when economists have expertise in a policy area, such as antitrust, it is the lawyers at the US Department of Justice and Federal Trade Commission, not the economists, who decide both whether to bring an antitrust case, and the strategy to win it.

The significant influence of the legal profession in the United States has created two important problems. Examining them is a natural extension of my research program on the efficacy of markets and government.

First, the legal profession is able to regulate itself. I approached that problem, with Robert Crandall and Vikram Maheshri, as a classic example of regulatory failure in our 2011 Brookings book First Thing We Do, Let's Deregulate All The Lawyers. Regulation amounts to entry barriers erected by the profession that generally require lawyers to graduate from a three-year law school accredited by the American Bar Association and to pass a state bar examination to obtain a license to practice law. Kim Kardashian, who is attempting to practice law by serving an apprenticeship and passing the California bar exam, is not a common exception. Individuals who provide legal services without a license can be charged with the unauthorized practice of law.

Network industries, such as airlines and railroads, were thought to require entry regulation because they exhibited large economies of scale that prevented workable competition. Deregulation revealed that those concerns were exaggerated. Regulations created excess capacity that made it appear that network industries were characterized by large scale economies when, in fact, they were able to shed excess capacity and operate at close to constant returns to scale in a highly competitive environment.

Similarly, the justification for entry barriers to the legal profession is based on a mischaracterization of market conditions: namely, occupational licensing is necessary to ensure a minimum standard of legal services because consumers cannot distinguish between competent and incompetent lawyers, who will take advantage of them. However, advances in information technology have spurred new institutions that provide considerable information about lawyers' qualifications, disciplinary records, and assessments by clients. Such information, which is used extensively by consumers to inform them about legal and many other services, would be even more prevalent in a fully deregulated market.

First Thing We Do concludes that occupational licensing was providing no benefits to consumers while padding lawyers' pockets. Indeed, lawyers were earning premiums that were estimated to be an eye-popping $71,000 per practicing lawyer in 2004, and those premiums were widely shared among the profession. First Thing We Do called for deregulation that would make occupational licensing optional and would stimulate competition that would reduce the prices of legal services.

As noted, the larger costs of regulations are dynamic, which are reflected in the second important problem caused by the legal profession's enormous influence: lawyers have compromised the efficacy of policies affecting consumers of legal services, as well as policies affecting the public more broadly. In Trouble at the Bar, we take a long-run view of how the adverse effects created by barriers to entry in the practice of law have appeared throughout a lawyer's education in law school and subsequent career, including, in some cases, serving in elected or appointed high-level government positions. We conduct empirical analyses to shed light on the profession's key institutions and indicate how the profession's culture has evolved in a protected regulatory environment and how it has affected the rest of society.

The topic areas we discuss and the major conclusions we reach include:

• Law schools and legal education—the returns to a law degree are declining; the law school curriculum should expand as should alternative forms of legal education.
• Private law firms—the work environment and quality of life of attorneys is troubling, especially because lawyers who take leave to work in government have not been instilled by their law firm experience with the value of efficient and compassionate public policy.
• Lawyers' choice of sector—an earnings penalty is associated with working in the public sector, which affects the allocation of legal talent between the private sector and the government.
• Lawyers in the highest level of government—even when the government can attract highly capable lawyers, for example, at the Office of the Solicitor General, their effectiveness is limited by organizational and workplace constraints, while Justices on the U.S. Supreme Court are increasingly contributing to ideological polarization.

In the final analysis, Trouble at the Bar is concerned with policy toward the legal profession and how the legal profession affects policy, so in this series of posts I will use the book to discuss the public's access to justice, ideological polarity on the Supreme Court, and the efficacy of government microeconomic policy. I then synthesize the posts and draw conclusions about ways the legal profession and its impact on society could be improved.

Full disclosure: I am an economist applying my discipline's (annoying) practice of judging scholars and practitioners in other disciplines and telling them how to analyze the world and reach constructive solutions to difficult problems. I raise and address anticipated counterarguments to my positions, but you will have the last word with your online comments. I hope you find the material provocative.