Deregulated Lawyers and Regulatory Spread

September 22, 2011

by Chidem Kurdas

In their new book, First Thing We Do, Let’s Deregulate All the Lawyers (Brookings Institution Press, 2011),   Clifford Winston, Robert W. Crandall and Vikram Maheshri reach the surprising conclusion that America has too few lawyers rather than too many. They make a strong case but it raises a major question.

Legal costs are high because regulatory entry barriers – mostly imposed by the states –keep out potential suppliers of law-related services. You can get arrested for providing a service without a law degree and license to practice in the state.

No doubt some legal tasks benefit from being performed by someone who graduated from a law school accredited by the American Bar Association and passed the state bar exam, but many simple legal tasks are not done any better. The result is an earnings premium for lawyers and an inefficient use of resources.  Relaxing the restrictions should reduce costs and create jobs, Winston, Crandall and Maheshri write in a WSJ article based on the book.

But the supply of lawyers is not like the supply of most other services. As the authors point out, “lawyers benefit from government policies that increase the demand for their services.” Moreover, there is a symbiotic relationship between policymakers and the legal profession.

If  the supply of plumbers increased, competition would drive down the price of plumbing services and the lower price would likely encourage more demand. But plumbers can’t write laws that force the population to hire more plumbers. Lawyers write laws and regulations that force businesses and households to hire lawyers.

In other words, the supply of lawyers tends to create its own demand. Increasing the supply of legal service providers may reduce the average hourly fee for legal services. But at the same time the profession can impose additional regulations that create more demand for legal services, thereby increasing the number of hours to compensate for  lower fees. In this way total spending on lawyers’ services would remain the same or even rise.

Winston, Crandall and Maheshri recognize that government policies increase the demand for legal services. Their case for deregulating the supply is that otherwise the cost will go even higher because of growing government-induced demand  combined with restricted supply. This is a powerful argument.

Then again, law is not like other labor markets where the supply and demand are independent. Looking to deregulate the supply side is insufficient if it does not focus on the special role lawyers have in policymaking and the ease with which they can boost regulation. I’d worry that if there were a significant increase in law school graduates, the country would get further bogged down in regulation that creates demand for legal services.

Perhaps one of the changes proposed by Winston, Crandall and Maheshri, namely no longer requiring firms that provide legal services to be owned and managed by lawyers, might have less of a demand-inducing effect. In any event, deregulation of legal services needs to pay close attention to the intertwining of supply and demand in this arguably unique profession.

4 Responses to “Deregulated Lawyers and Regulatory Spread”

  1. Dave Pullin Says:

    Of course creating lawyers create jobs — it creates a demand for more lawyers. Every new lawyer needs the opposing side to hire a lawyer too.

    The problem is that lawyers don’t create wealth. They are engaged in a negative-sum-game to re-distribute wealth – at best to the right owner, at worst to the wrongful owner, but always to themselves.

  2. Shane Chubbs Says:

    @Dave: Some lawyers, those with expertise in negotiations, may facilitate wealth-creating transactions that might not take place otherwise.

  3. chidemkurdas Says:

    Dave Pullin–
    Re “Every new lawyer needs the opposing side to hire a lawyer too.”
    You’re right that there is a cumulative effect–because of the actions of one lawyer the opposing parties have to hire their own lawyers.

    But it is the laws and courts that create opportunities for the first lawyer; so it goes back to legislation and policy.

  4. chidemkurdas Says:

    Shane Chubbs–
    Certainly the rule of law facilitates wealth creation. By writing and helping enforce contracts, lawyers perform a key function. But that’s only part of the legal profession.


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