By this time everyone and their cousin has probably read The New York Times‘ “Law School Economics: Ka-Ching!,” which graced the front page of the website and the print Business section in today’s Sunday paper.
This won’t be a critique of the piece as journalism–that would be too easy, and to be fair I have no way of knowing what the reporter and his editors had in mind; they may have achieved precisely what they set out to do. My reservation about it as journalism is that the piece suffers from overly concentrating its fire on New York Law School and its evidently polarizing Dean, Richard Matasar. (I don’t know Richard, but have heard generally positive things about him and have no reason to doubt his sincerity or good intentions.)
That is to say, as a story about New York Law School it excels; as a story about the phenomenon of dubious post-graduation employment/salary statistics, which is the tale I’m interested in having documented, I found it disappointingly thin.
Nevertheless: Here we go.
First of all, there are some valuable, and telling, statistics. Stack these up for size:
- from 1989 to 2009, as college tuition rose 71%, law school tuition “shot up” 317%
- “Like all other law schools, NYLS collects the job information [it reports to US News] without anyone else looking at the raw data or double checking the math; [there is no] independent auditing.” (I guess I knew that, but it’s still rather bracing, and not in a good way, to see it stated so baldly in print.)
- and this graph lays it all out in vivid fashion:
I could stare at this graphic a long time. Just to recap what it’s telling us: Private school college tuition went from about $20,000 20 years ago to just north of $30,000 today, while private law school tuition went from $10,000 to nearly $40,000 in the same period.
Public schools, in percentage terms, were downing the steroids in even larger quantities: College tuition up about 75%, but law school tuition up an eye-popping 575%. (I doubt even healthcare has such a track record, and it’s almost always a contender for Highest Rate of Inflation.)
So NYLS is scarcely alone. (I won’t say they’re “in good company;” it’s more accurate to say they’re in squirrely company.)
But for better or worse this brings us back to Mr. Matasar. For all his beguiling rhetorical jousting with the Law School As Cash Cow academic model, he didn’t actually reshape NYLS during his 11 years as dean there.
Why not?
His on-the-record defense has a strong air of plausibility:
Asked if there was a contradiction between his stand against expanding class sizes and the growth of the student population at N.Y.L.S., Mr. Matasar wrote: “The answer is that we exist in a market. When there is demand for education, we, like other law schools, respond.”
“I’m just the unwilling handmaiden of market forces.” Yes, sounds plausible.
Now, I said before and I’ll reiterate that I have no reason to doubt Mr. Matasar’s sincerity or good intentions; but if he means what he just said, he either doesn’t understand how markets really work or he finds it convenient to ignore what he knows.
What do I mean?
Let’s start with Econ 101 (or perhaps I should call it Securities Law 101): Markets work, except when they don’t.
“When they don’t” refers to all the permutations of “market failure”–positive or negative externalities, lock in, third-party payers, and the list goes on.
But by far the most common and sometimes subtle cause of market failure is asymmetrical or incomplete information: This is the genius (as I’ve written before) of Rule 10b-5, which is the one and only provision of the securities laws I’d keep if every single other provision had to be stricken from the books. You know 10b-5:
“Rule 10b-5 (17 C.F.R. § 240.10b-5): Employment of Manipulative and Deceptive Practices”:
- It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
- (a) To employ any device, scheme, or artifice to defraud,
- (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
- (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
- in connection with the purchase or sale of any security.”
(emphasis mine)
The genius of 10b-5 is its simplicity (which also, of course, makes it powerful): Thou shalt not mis-state or omit a material fact. The Supreme Court has defined “material” as: “[A]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.”
What do you think are the odds that a “reasonable” law school applicant would consider post-graduation employment rates and salary statistics “important” in deciding whether to apply?
Law schools that hide, manipulate, finagle, or remain culpably incurious about these key measures are choosing precisely not to “exist in a market,” and they are grossly distorting the “demand for education.”
As I would define markets, law schools like this live in a market-free reality distortion zone.
Whether or not the Times piece intended to, it gropes toward the same conclusion. Consider the lead:
With apologies to show business, there’s no business like the business of law school. The basic rules of a market economy — even golden oldies, like a link between supply and demand — just don’t apply.
And again, further down in the piece:
This is a story about the law school market, a singular creature of American capitalism, one that is so durable it seems utterly impervious to change.
Actually, no industry, no organization, and no individual can long behave as if they’re “impervious” to market-driven change. Which reconfirms my point: Law schools like NYLS are doing all within their power to escape market discipline by withholding material information, erego breaking free of any rigorous notion of what a market actually is.
But take away that defense (“we’re handmaidens of the market…”) and I’m not sure what the fallback position is.
Do you think there might not be one?
