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Sunday, October 18, 2015

In (Limited) Defense of Professional Cartels

J.P. Morgan likes a little competition

Past posts have decried professional cartels, like those of the legal and medical professions, and obliquely praised economists for not having much of one. Here, however, it is argued that—while they are still clearly bad and ought to be abolished—they are not quite as bad as one might naively imagine.

Lawyers, as well as other professions, have established professional cartels that artificially limit the supply of lawyers and hence increase their price (that is to say, their fees and salaries). That this is the principal reason for these cartels is evidenced by the fact that they are established largely at the urging of lawyers. The stated reason—consumer protection—could not explain this fact. Who goes to the legislature and begs it to restrict one’s practices lest one do to terrible things to the public?

The legal cartel is maintained principally by the criminalization of provision of legal services by anybody who has not graduated from law school and passed the bar exam. This prevents the provision of basic legal services by those who could readily perform them, but lack the time, talent, or money to go to law school and pass the bar. This is bad for both such would-be providers of legal services and those who would-be their clients. The would-be providers earn lower salaries. Their would-be clients must unnecessarily turn to licensed attorneys and pay higher fees. The only people benefiting from this arrangement are licensed attorneys who perform basic legal services: Their supply is restricted, so their wages rise. But overall this is a dead-weight loss, just as for most other legislated cartels.

However, an important fact often overlooked in this analysis is that many (most?) attorneys do not provide basic legal services, but rather mid-range and high-end services. And for this they fees several times higher than those earned by basic-service attorneys. This is very difficult to explain in cartel terms. Unless clients—who are legally free to choose basic-service attorneys—are consistently stupid and wasteful,And before you jump on the conclusion that they obviously are, consider how consistent this is with the oft-heard assertion that major corporations, for example, are diabolically clever greed monsters. the only explanation for this is that these higher fees are the result not of a cartel, but a functioning competitive market and hence most likely are economically efficient.One exception could occur if the organized bar successfully limited law school admissions below the level of supply and demand (as the medical profession is said to do). That is a possibility, but given that most law schools today struggle to enroll nearly as many students as they’d like or are allowed to, this constraint must currently not be binding.

Moreover, the requirements to become a lawyer (law school and bar) are unlikely to be much of a dead-weight loss either. Most mid-range and high-end attorneys would probably have attended law school even if that was not a professional requirement for, contrary to what one sometimes hears, would-be lawyers do in fact in law school learn a thing or two that are useful in their careers. The bar exam, too, is not much of a hurdle. The law schools which produce these lawyers have first-attempt bar passage rates of well over 90%. So while one might reasonably object to these requirements on the principled grounds that they are compulsion and distortion, compelling somebody to do something which they’d want to do anyway is not much of a practical harm.

So the existence of the legal cartel probably does not do very much harm, except in the provision of basic legal services. Of course that real harm is still sufficient reason to abolish the cartel. Little more is needed than legal clarity that it would be fraud to hold oneself out as an attorney unless one has passed the barWhich is surprisingly easy. Bar exams are difficult to ace, but any reasonably intelligent person (such as any non-lawyer among the readers of these pages) should readily pass it after only taking a two- or three-month bar prep course (which of course most law school graduates feel the need to take anyway). or to claim a J.D. unless one has graduated from law school.