Many people underestimate the contribution disease makes to the economy. In Britain, more than a million people are employed to diagnose and treat disease and care for the ill. Thousands of people build hospitals and surgeries, and many small and medium-size enterprises manufacture hospital supplies. Illness contributes about 10 per cent of the UK’s economy: the government does not do enough to promote disease.
–John Kay, writing on the Op-Ed page of The Financial Times.
Tongue-in-cheek, almost surely, you are telling yourself, but how exactly?
Such reasoning is identical to that of studies sitting on my desk that purport to measure the economic contribution of sport, tourism and the arts. These studies point to the number of jobs created, and the ancillary activities needed to make the activities possible. They add up the incomes that result. Reporting the total with pride, the sponsors hope to persuade us not just that sport, tourism and the arts make life better, but that they contribute to something called “the economy”.
The analogy illustrates the obvious fallacy. What the exercises measure is not the benefits of the activities they applaud, but their cost; and the value of an activity is not what it costs, but the amount by which its benefit exceeds its costs.
He rightly calls the strained and implausible efforts to justify the contributions of sports and art to the economy–by pointing to the people employed to do everything from build the stadiums to clean up after games, or to selling snacks and drinks at intermission of the theater or opera–“bad economics.” And that they surely are.
Good economics here, as so often, is a matter of giving precision to our common sense. Bad economics here, as so often, involves inventing bogus numbers to answer badly formulated questions.
But good economics is often harder to do than bad economics. It is difficult to measure the value of a Shakespeare play: you can start with the box office receipts, but this is only the beginning of the story. Adding up the actors’ wages does not help. Changes in relative prices since the time of Verdi mean that grand opera is now very expensive to perform. The relevant economic questions are whether the cultural and commercial value of the performance offsets these costs and whether these benefits can be translated into a combination of box office receipts, sponsorship and public subsidy. The appropriate economic criterion, everywhere and always, is the value of the output. [emphasis supplied]
But bad economics has been allowed to drive out good.
Swell, you may be thinking, but law (our colleagues’ occasional hyperbolic and overly enthusiastic claims to the contrary notwithstanding) is neither a sport nor an art.
So what does this mean to us?
The key is that the “appropriate economic criterion…is the value of the output.”
Meaning that the appropriate economic measure of what lawyers and law firms do is…”the value of the output.”
Permit me to state the obvious: That is not the way the billable hour works. The billable hour has its feet firmly planted in cost of production, not value to client. It is therefore, economically speaking, almost ipso facto going to diverge from “value,” and thus be an erroneous way of pricing legal services. Sometimes the law firm will get lucky–a high fee for poor service–and sometimes the client will get lucky–a low fee for extraordinary service–but the revenue model is intrinsically, conceptually, mistaken. Cost may tie to value occasionally–it should, of course, always be lower than value–but only as a result of running what are essentially an enormous number of experiments on client matters, every day, all the time.
This makes no more sense than lobbying for greater support of “disease,” on the basis of its contribution to economic activity.
Ward-level political wisdom has long held, of course, that “you can’t beat somebody with nobody,” and that may, alas, be where we too often find ourselves vis-a-vis the billable hour. We may not like it, but as long as the alternative is “nobody,” we will re-elect, and re-elect, and re-elect, the billable hour.
I suppose it beats electing pestilence.
