Linear extrapolations are widely suspected of being unreliable, but maybe not widely enough. Stated differently, it’s a category error to engage in static, not dynamic, analysis.

Stated yet differently, the interesting challenge is almost never to ask, “What can we do to solve this problem?” but instead, “What happens after we take this approach to solving the problem?”

Let me give you a couple of specific examples.

A long-running contributor to structural disequilibrium in the metropolitan New York traffic congestion pattern is that bridges across the East River are toll-free whereas almost all other bridges and tunnels in the area carry tolls as high as $12 one-way. Not surprisingly, the East River bridges are chronically congested and “over capacity.” (The experts’ knowing diagnosis that they’re “over capacity” always amuses me; drivers are paying in time, not money: The “capacity” of the bridges is what it always has been.) So periodically proposals are floated to impose tolls on these bridges, with seemingly reliable projections of how much revenue would be collected based on today’s vehicle traffic multiplied by the average toll.

This is a linear extrapolation, a static analysis, and it’s wrong. It overlooks the question, “How will people alter their behavior in light of the tolls?” Obviously, the answer is that some will carpool, some will take mass transit, some telecommute more often, others use different combinations of bridges and tunnels. Whatever happens, toll revenue will fall short of {[today’s traffic volume] x [proposed toll]}.

Now, in our own backyard, we have a stunning example of market dynamics at work.

The Wall Street Journal reports “First-Year Law School Enrollment at 1977 Levels,” and here are the numbers:

  • the number of 1L’s fell 11% this year, down nearly 5,000 from 2012, at 39,675 students
  • 1977’s number was precisely one more, 39,676
  • 1975 was the previous low, at 39,038
  • in 1975 there were 163 ABA-approved law schools; today there are 202

The all-time high of 1L enrollments was three short years ago, in 2010, at over 52,000, about 30% above this year’s number. Here it is graphically:


Meanwhile, The National Law Journal’s story on this quotes University of St. Thomas School of Law professor Jerome Organ writing in an evidently off-handed fashion, without comment or analysis, that “most law schools see further declines in their LSAT and GPA profiles.” This isn’t the first time we’ve heard this—that the decline in applicants/enrollees has been especially high among the more academically qualified students—but it certainly begs for an explanation. My hypothesis, divorced from empirical basis at this point, is that the brighter students have more options. But not to cast aspersions.

There’s more: In recent years, average graduating class size (3L’s, that is, and to state the obvious there’s shrinkage between 1L and 3L numbers) has been about 44,000. We’re now over 10% short of the number of students law schools have been graduating recently. This means that, for all practical purposes, law schools below the elite tier have become open enrollment.

But back to dynamic markets.

Admirable and swift has been the reaction of prospective law students to the changed legal marketplace since 2008—2010. Some people may not like what has happened, and many more may be completely baffled about how to respond, but this is the way markets are supposed to behave. Econ 101: When demand drops, supply should follow. As the WSJ drily puts it, “those considering legal careers appear to be paying attention.”

All the evidence so far, however, is that law schools are really not—or they’re not acting on what they’re seeing. If you beg to differ, I ask you merely to read on.

This raises a host of questions about the business models for law schools going forward—especially standalone, independent law schools—as the always reliable Bill Henderson points out with understatement:

“It is a big drop-off,” said William Henderson, a professor at Indiana University’s Maurer School of Law who has written extensively on the legal profession. “The wind has been at our backs for many, many decades, and we haven’t really had to operate like a lot of businesses, with adjusting to swings in demand.”

And according to Barry Currier, identified as “the ABA’s managing director of accreditation and legal education,” law schools have no intention of behaving like businesses. Even though two-thirds of the 202 ABA-accredited law schools reported declines in 1L enrollment, with 60% of them suffering declines over 10% (the ABA promises to name names later).

This gets even richer: Currier seemingly takes schools to task for “[presuming] that the market for law school graduates was growing, [but they shouldn’t have expected] those numbers were going to be sustainable for a long time.” Fair enough, one supposes, had the schools accepted this cold dose of reality and stopped there. But incredibly, Currier goes on to report many schools are still in a state of complete denial: Shockingly, 27 law schools expanded their 1L clases by 10% or more. How is that possible? “Some schools may have corrected and are now in a position to increase their enrollment.”

May we stipulate:

  1. that financial reality is going to dictate that many schools have to redesign their business?
  2. that this is a “correction” that will be in place for the foreseeable future?
  3. and that law schools cannot magically gin up demand for 1L enrollees single-handedly, in the teeth of economic and technological changes that argue that we’ve moved to a new and lower “set point” for new-JD demand?

Note to those running law schools: You will find it bracing indeed when the market decides it wants to buy a lot less of what you’ve been selling.

If law schools come to grips with all those new realities, then the most obvious challenge is simply whether law schools caught in the wrong place in this game of enrollee musical-chairs can react in a sufficiently meaningful and rapid way to the downshift in demand to even survive.

They have large and long-term fixed costs not just in the form of real estate and facilities, which presumably have some non-zero value in alternative uses, but, most glaringly, tenured faculty, which is not an “asset” for which there is a market at all. And even if there were a market for this asset, it doesn’t belong to the school in the first place and isn’t the school’s to sell.

Putting this all together, it’s hard to avoid the conclusion that some law schools are going to close their doors.  I actually have a request for those who would differ with this conclusion, since I think the past few years have shifted the burden of proof onto you.  Please explain, in the comments, why all law schools will—and deserve to—remain in business.

If you’re running a law firm and think that  firms are challenged in terms of adapting their business model, count your blessings that you’re not one of the less fortunate law schools. Welcome to dynamic markets.

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