Flooding the Market Will Not Lower Prices

Previously, I've advocated that there are benefits to taking a "free market" approach to legal education, i.e. reducing entry barriers and letting anyone practice law. And there are: the risk of a mis-allocation of labor and capital reduces significantly, people who might be excellent lawyers who would otherwise not go to law school might be enticed to practice, etc. etc.

But drastically reducing the cost of legal education and eradicating entry barriers will not reduce the high costs of sustained litigation, high-caliber representation, and other examples of lawyers costing oodles and oodles of money.

And yet three "economists" continue to spout the simplistic view that good ol' supply and demand will lower average attorney salaries and the cost of representation. From - of all places - the Economist:

In 2000 the average American law-firm lawyer made $191,000. Exactly comparable numbers are scarce, but the average salary for all lawyers in Canada in 2002 was just $64,000; in Australia in 2000 it was $90,000. American lawyers are clearly reaping some kind of premium, and the economists behind the Brookings study carefully control for a host of factors including long hours, areas of specialisation, and inherent talent. They reckon that of the $170 billion spent on lawyers every year in America, some $64 billion is a premium produced by market distortions....

I'd like to know how these "economists" factored in that they're comparing completely different legal systems - much less "inherent talent" - but in any event, they make some rather audacious claims:

[T]hose without the bar exam or law school under their belt could still, with training and experience, dispense routine guidance and offer legal services, such as drafting wills and arranging simple divorces, to poorer clients. Doing so today risks getting a false “lawyer” sent to prison.

What, exactly, does legalzoom do? What are legal aid facilities for? There are very, very few dirt-poor divorces and simple will needs going unmet, and flooding the market with new lawyers isn't going to lower the price of getting a simple will or a simple uncontested divorce. Why? Because there are tons of lawyers perfectly qualified to do this type of work who would probably do it for low flat fees who aren't running robust practices.

If there really were a demand for these sorts of services, there wouldn't be a 20k surplus of lawyers graduating every year. There would not be lawyers working at the Gap. There would not be lawyers toiling in doc review and taking part-time internships for free. Res ipsa fucking loquitur.

In any event, LSTB, as usual, has a much more detailed, statistically-based entry ripping these views to shreds. He, too, believes that there will be no substantial reduction in fees by flooding the market.

[F]irms are risk averse, valuing credentials over their cost. They’re cautious because their clients are. If clients believed they were overpaying for private school law grads, they’d demand firms hire from public schools, or they’d stop paying new associates’ exorbitant salaries. Oh wait, they’ve been claiming to do just that. If the legal labor market were this cartelized, no one would care about U.S. News’ rankings, and grads would have jobs at graduation, even in a period of high unemployment.
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The high costs of legal services are due less to ABA accreditation requirements and more to hourly billing practices, poor price signaling, and risk aversion by purchasers of legal services.

And the authors seem to concede that there is a major flaw in their basic reasoning:

The Brookings authors acknowledge that the most complex matters will still go to the best-educated and qualified lawyers.

I write separately - a concurring opinion, if you will - to underscore the flaw and place it in precise terms.

First, I'd like to reiterate that there is very little "simple" business floating around out there waiting to be sopped up or have prices driven downward by people who aren't concerned with going to the "best-educated and qualified lawyers." Criminal defendants, injury victims, insurance companies: these people aren't going to avoid the most qualified lawyers and bargain hunt. If you were injured in a car wreck, would you go with the experienced p.i. shop offering a 15% contingency cut or the newbie with no experience offering a 9% cut? Unless you're a moron, you go with the former. It's not complex litigated, but you can bet your bottom dollar that the most-qualified lawyers will still soak up the best business.

That, in a nutshell, is the giant pink elephant in the theory. The major problem with these feel-good libertarian screeds about restricted markets in the legal profession is that lawyers are not, and never have been, fungible goods. For supply and demand to work - to even apply in the first place - the product at issue has to be fungible, which means more or less that the consumer wouldn't differentiate between different producers on any basis other than price. Oil, for example. Or sugar or cheapo utilitarian furniture or standard grade screws or 20 lb white paper.

Attorneys are not on that list. A new graduate is not fungible with an experienced litigator. Thus, no matter how many new graduates you pump into the market, no matter how lax the entry barriers become, the experienced litigator - be it p.i., civil rights, housing, workman's comp, divorce, etc. - will not feel any price pressure. For him to lower prices or his share of the pie, there'd need to be a flood of experienced similar litigators. That's unlikely to happen; even if you continually pump thousands upon thousands of new graduates into the market, only a few will ever become experienced personal injury litigators. Thanks to it being a pyramid system, the additional operation of any supply and demand would be negligible.

This seems self-evident, but people who argue from a juvenile supply-and-demand perspective constantly overlook it. There's no guarantee that a million more law graduates would ever produce any sort of drop in legal prices. The consumers just don't buy it. Filling out a securities filing is a fairly straightforward matter as far as things go. And yet the business goes to white shoe firms. As LSTB notes, it's risk aversion. It also proves that no supply and demand analysis will work.

No matter how hard you try, you can't flood the market with high-caliber, prestigious law firms, or with experienced attorneys in subfield [x]. Prestige, experience, and expertise are valued (and reinforced by the court system in determining attorneys fees awards) across all fields. Thus, without a revolution in how consumers select attorneys or how attorney costs are approached by the courts, there is no possible way lower barriers of entry would really reduce the cost of 90% of legal representation. Other trends - increased efficiency or contracting business - might lower prices, but flooding the market with minimally-qualified participants will not.

Again, if it could happen this way, it would have already (as it has in areas like traffic ticket law). Three "economists" wasted a lot of time writing a book whose prime thesis can be killed on little effort.