The ABA Doesn’t Understand Free Market Economics

Facing a severe decline in demand for legal services among moderate-income Americans who don’t believe they can afford legal representation, two years ago the American Bar Association convened the Commission on the Future of Legal Services. This august braintrust recently published the results of its deliberations. Its conclusion: Americans need to be educated that they need more legal services.

ABA-Greedy-DelusionalAs Christy Hoop of Hinshaw & Culbertson LLP summarized in a recent JD Supra post:

The Commission suggests that all individuals should have legal checkups “on a periodic basis, especially when major life events occur” such as a marriage, divorce, the birth of a child or those individuals who may be in a situation which may require a medical health directive or a will.

The preamble to the proposed ABA Guidelines for Legal Checkups declares that “The purpose of legal checkups is to empower people by helping them identify their unmet legal needs and make informed decisions about how best to address them.” What the ABA refuses to recognize or admit is that the legal profession is subject to the the invisible hand of free market economics, and Americans already are making informed, rational decisions about their use of legal services. Namely, lawyers aren’t worth what they think they are.

Let us quickly review the basic laws of supply and demand. As described by Investopedia,

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.

economics3.gif

A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C). [Emphasis added]

The ABA Economy

The ABA is essentially a failed cartel or medieval-style guild. While the ABA and state bar associations once controlled prices by controlling the supply of legal services (i.e. licensed lawyers), they essentially undermined their own self-interests by allowing the proliferation of law schools, and by allowing the cost of legal education to skyrocket.

As a result, law schools have become massively expensive diploma mills, resulting in a glut of supply (lawyers) with a cost basis that requires high prices for legal services in order to service law school debt (at best) and the law firm partnership Ponzi scheme model (at worst), which in turn drives down overall demand. In high-end corporate circles, alternative billing arrangements that might lower legal costs (or at least improve the ROI of legal services) have been experimented with for years, but the model has yet to show traction. Meanwhile, the only recourse at the lower end of the economic ladder is the nearly dry well of government-financed legal aid.

Is the ABA Commission on the Future of Legal Services Delusional?

Compounding the legal profession’s supply-and-demand problems is a collective belief that their services are intrinsically worth more than those of other professions. In legal profession navel-gazing blogs — and there are A LOT of them — there is a constant litany of laments about how lawyers can’t live in the style they deserve because non-lawyers don’t understand how much law school debt they have to pay off.

If that’s truly how one feels, be prepared to answer why someone so highly trained still doesn’t understand a basic principle of family budgeting: Don’t incur debt that you know you might not be able to repay (or not be able to live well while repaying it).

The executive summary of the Commission’s findings makes numerous obvious and naive observations, like:

“Many lawyers, especially recent law graduates, are unemployed or underemployed despite the significant unmet need for legal services;”

“The traditional law practice business model constrains innovations that would provide greater access to, and enhance the delivery of, legal services;” and

“The legal profession’s resistance to change hinders additional innovations.”

Yet while full-throatedly recommending impotent measures like the establishment of an ABA Center for Innovation, not one of the Commission’s 12 recommendations even contemplates measures directed specifically at lowering the cost of legal services to average Americans.

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