Cheap Lawyers, No License

It’s an interesting notion that relies on one god-awful assumption.

“Our key premise is that consumers aren’t stupid,” [Stanford Graduate School of Business professor Jonathan Berk] says. “Put yourself in the situation: If you know there are charlatans in a certain field, but you don’t know who they are, you’re not going to pay as much, right? Whatever the odds of getting an incompetent provider are, prices will be forced down to a level at which you’re willing to take that chance.”

That’s a heck of a key premise, particularly when the contention is that people should be willing to bet their lives on it. The argument is that licensing serves the interests of protecting the providers of licensed services more than the consumer.

So, naturally, we take it for granted that licensing requirements — now common in skilled professions, including law, architecture, and accounting — exist to protect consumers. Indeed, that’s more or less what Stanford Graduate School of Business professor Jonathan Berk assumed when he began a theoretical study of licensing and certification in the labor market.

Instead, he and coauthor Jules van Binsbergen of the University of Pennsylvania found exactly the opposite. As they report in a new working paper, “Regulation of Charlatans in High-Skill Professions,” their model concludes that licenses enrich the incumbent providers of a service and hurt consumers — not sometimes or in certain scenarios, but every time.

There is no doubt that having a license to practice medicine or law creates a guild-like situation that inhibits competition. And the spread of licensure from the learned professions to hair-braiding has followed the general, and largely irrational, route of protectionist view of consumerism. It’s not because the hair-braiders guild owns the legislatures, but because consumers demanded protection from . . . their own ignorance.

The second half of the 20th century saw an explosion in the number of fields requiring an official credential to practice, and the impetus for that often came from trade group lobbying. In 1950, 73 occupations were licensed in one or more states. By 1970 that number had grown to more than 500. Many other professions, including mechanics and meteorologists, created voluntary certification programs — even psychics now have a testing and certification board. (A footnote in the paper remarks, “One wonders why a psychic examiner would need to administer an examination to determine whether a candidate is qualified.”)

These credentialing programs serve as a barrier to entry, and as with such barriers in industry, they reduce competition and line the pockets of incumbents. In a way, groups like the American Bar Association are the equivalent of medieval guilds, which were at least open about their intent to fence off and monopolize skilled labor markets.

Mention of the ABA reflects the gap of the academics in understanding their subject matter, since the the ABA is merely a membership organization, not the licensing authority. One would expect them to know this when proffering such a controversial view. They don’t.

But is there no distinction between licensing physicians and psychics?

Skeptical that anyone would gamble on a doctor? Imagine you need a simple procedure that is wildly overpriced at $10,000 in today’s medical market — but you can also get it done in a country where 1% of the doctors are unqualified. Would you accept a 99% chance of success if it cost only $5,000? How about $1,000? At some point, there’s a risk/price tradeoff that consumers will accept. We do it every day.

To the extent that one can’t afford treatment at the going rate, they may well go for discount surgery if left to their own devices. Is this because they make the financial choice that they are willing to lose a leg for the savings? Should the poor be forced into playing Russian Roulette with their body parts based on price? Ironically, the least sophisticated consumers may well be the most vulnerable to charlatans.

So, charlatans lower the price of a service. But if that were the whole story, buyers would come out even. You pay less, and you get less — in the sense of reduced confidence in the outcome. However, there’s a second, supply-side effect, Berk says, and it always goes one way: “When you lift the regulatory barrier, you get more people offering the service. Some are charlatans, but some are just people who trained but failed the licensing exam. Competition increases, and that pushes the price down further. That’s why consumers are better off in a market with charlatans — and skilled workers are worse off.”

Much as this may be true as a general concept, there is a huge difference between getting a lousy haircut and spending your life in prison. There is no way for the market to determine that one guy is a scammer while another, despite failing the licensing exam, is pretty good at his job, without sacrificing victims to failure. Is it acceptable for somebody to die to learn that Doc Jones does lousy surgery?

And even if he really sucks at medicine, the assumption that the market will work with sufficient efficiency such that word will spread, and people will steer clear of Doc Jones’ knife, is unrealistic. People can’t tell good from bad in the learned professions, particularly since there is a huge margin of error. Even good surgeons lose patients. Good lawyers lose trials. The difference is that you have a chance of surviving, if not a guarantee.

When it comes to licensing psychics or hair-braiders, even florists, the stakes aren’t life or death. Pick the wrong person and you may be pissed, but you’re still alive, you’re still free. Sure there is a price to be paid for guilds who limit entry. There is a price to be paid for not having training and licensure as well when it comes to the learned professions. But if the key premise of the argument is that consumers aren’t stupid, then they’ve never met clients or patients.

61 thoughts on “Cheap Lawyers, No License

  1. B. McLeod

    Medieval guilds would highly offended by the comparison to ABA, which is questionable even as “a membership organization” in light of all the free members and the (so far unsuccessful) attempts to make it financially viable based on non-dues revenues.

      1. B. McLeod

        It just stuns me that anyone would think of it as a “guild.” Especially given that the vast majority of the free members are students who aren’t even in the profession as yet.

  2. Hunting Guy

    Since the ABA reviews the qualifications for federal judges, rightly or wrongly, is it not a licensing agency?

    1. SHG Post author

      No. Not even a little bit. They issue reviews like I do, even if they’re occasionally taken more seriously. Beyond that, they have no say whatsoever.

  3. Dan

    So the first-order supply-side effect, per the authors, is that more people are offering the service, and with a greater supply, the price necessarily drops. Plausible enough, and good for customers, as far as it goes. But then they ignore (at least based on the article; haven’t yet read through the 68-page paper) the second-order supply-side effect–as prices drop, the highly-skilled people will be less willing to enter that profession in the first place, which will reduce the overall skill level of the profession–and that’s going to hurt customers.

    1. Dan

      Now having read some of the paper, I see that they do address this question, but they do so by merely assuming it away (pp. 4-5). They’re probably right that “the short-run elasticity of labor supply with respect to wages is essentially zero,” but the assumption is that “agents are either born with the capacity to acquire the skill or they are not. Because the skill is in short supply and great demand, this implies that in a market that does not feature charlatans, all agents who possess the capacity to acquire the skill will acquire it.” This is simply nonsensical.

      Most professionals are highly-intelligent, highly-motivated individuals who could, if they chose, succeed in any of a number of different professions, but would very rarely undergo training and licensing in more than one (I’ve known a few JD/MDs, for example, but very few). I chose to study law, and I’ve had adequate success in that field–but I likely could have chosen engineering or a medical profession instead. As the market changes, students’ choices will also change, as you’ve observed yourself.

      Taken with “customers are not stupid”, that’s now two “key assumptions” that are demonstrably false.

      1. SHG Post author

        Funny thing is I’m not entirely sure that it takes great innate intelligence to be successful at most learned professions. I know a lot of dumb lawyers who are quite successful for their clients. They don’t need to be brilliant, but just learn how to perform the function. And I know some brilliant people who are carpenters, because that’s what makes them happy.

        1. wilbur

          I read yesterday that most successful people are above-average in intelligence, but not at the very-high ranges. The reason offered was that school curricula are designed for the average student with average intelligence. Those at the very high or very low end on the scale are ill-served by it, and the very bright lose interest quickly and in fact learn the lesson that they can do well without much effort. That lesson usually does not serve them well in the real adult world.

  4. Skink

    “Imagine you need a simple procedure that is wildly overpriced at $10,000 in today’s medical market — but you can also get it done in a country where 1% of the doctors are unqualified. Would you accept a 99% chance of success if it cost only $5,000? ”

    99% qualified doesn’t equate to the same success. 1% unqualified, by any measure, is not possible. Including that question violates the “suspension of disbelief rule.” It makes everything else look like bullshit.

    Lifting the “regulatory barrier” only works on the surface. We’ve all had about a million clients say, “it’s simple, so I thought I could. . . . ” But there they are, sitting with us. Extend that to some guy that read about real estate closings and now does them for other people, and we’re gonna be a whole lot busier. We don’t have to go all the way to life-and-death or freedom issues–the fuck-ups will make real lawyers busy. According to this theory, busy is more expensive.

    1. SHG Post author

      His percentages are obviously nonsense, but even if they weren’t (and they are), if one in 100 suffered grievous injury due to incompetence, and there were, say 20 million procedures per year, are we good with 200,000 people suffering for having their surgery performed at Walmart?

      1. Skink

        Stop with the numbers! Even you did it with the 200K!

        Walmart would be fine because they would protect their liability by hiring competent folks. Shit, it could just buy a hospital. It’s a bad example. Discussing medicine in this context will not do because it’s not what most do. The better example is whether we’re good with a zillion people* suffering from Reddit lawyers.

        But enough civil stuff. I’ll go back to annoying different lawyers.

        *Making up numbers is better if you REALLY make up numbers.

  5. tom hynes

    Your argument is that clients and patients are in fact too stupid to make decisions about who to hire without the wisdom of the government. Is that correct?

    1. SHG Post author

      No. The point is that professions involve specialized knowledge that no consumer would have the ability to assess, so entry into the profession requires demonstration of minimal competence. Beyond that, consumers can choose whomever they like. Or to put it even more simply, you would have no clue if your surgeon was competent until after he killed you. Not until that point would you be a knowledgeable consumer, except for the fact that you would be dead.

      1. Casual Lurker

        “…you would have no clue if your surgeon was competent until after he killed you”.

        In most cases, you also won’t have a clue beforehand, either.

        You think licensing acts as a minimum screen? For hospitals/patients, the only real screen is due-diligence, pre-hire. When and where possible, always check the mortality stats for both the doctor and hospital.

        For the most part, licensing boards are there to provide a false reassurance to the public, while collecting revenue. I’m reminded of the case of Mats Järlström, the “Oregon Man Fined for Doing Math Without a License” (per the Reason “hit & run” blog), who was represented by the Institute for Justice.

        I’ve seen salesmen from medical device manufacturers perform highly skilled surgeries on real patients.* Usually to demonstrate how to install/implant some new device or replacement body part. In most cases these folks are NOT medical doctors. Some have a masters or other postgraduate engineering degree. But in most cases, that’s it. (The R1 and R2 noobs are always impressed when one of these guys ties a one-handed surgical knot with Vicryl 4-0).

        It’s always fun when the salesman tells the crowd “this is the first human primate I’ve tried this on! Wish me luck!” (Nervous laughter usually follows). Yes, it’s just part of his shtick. In most cases, he’s been trained by some of the best surgeons in the world.

        Anyway, for large hospitals in major cities, the vetting process tends to be thorough. Smaller institutions in rural locations, not so much. Just like bad cops that are fired or asked to leave, bad doctors just take their license and move to friendlier locations and continue to practice. Also like cops, slaps on the wrist by medical boards are usually shielded from outside scrutiny for “privacy” reasons.

        In most cases of surgery related death, unless you hire a private pathologist, you’ll never know the true cause.

        Believe me, if you attended a few M&M conferences, you’d wonder how the heck some of these folks got a medical license, let alone a specialty certification for a specific surgery type. Yet, postmortem, everything is geared towards hiding known incompetence and limiting liability. The lab-coat wall of silence makes the “blue wall of silence” look quaint by comparison.

        *Yes, there’s a surgical attending that’s nearby, supposedly supervising the procedure… just not as closely as one might like or would expect.

        1. SHG Post author

          I am aware of how bad docs can be. I’m aware they could be worse. Licensing may not provide much control, but no licensing would provide less. Remember, it can always get worse.

    2. Alex Stalker

      He’s saying there is a Dunning-Kruger problem because professions like law and medicine have a failure rate above 0% even with a hypothetically flawless practitioner.

  6. Patrick Maupin

    It’s not because the hair-braiders guild owns the legislatures, but because consumers demanded protection from . . . their own ignorance.

    Seems unlikely. Have you ever seen a consumer request licensing for anything?

    1. SHG Post author

      Have you not heard the cries of “something must be done” every time there’s a traumatic braiding that causes some oppressed woman to suffer PTSD? So yes, happens constantly, and every sad story demands a regulation in a progressive world.

      1. Patrick Maupin

        So florist regulation in Louisiana was because people put poison ivy in arrangements? I don’t recall seeing that in the documents IJ filed in the case; maybe I missed it.

        Same thing with the horse teeth floating by veterinarians in Texas. Nope, a lot of regulation is driven by monopolists rather than consumers. Even in the cases where a consumer might start the ball rolling, they’re out of their depth at the bargaining table (not because of stupidity, but because of limited time and attention — the concentrated benefits of regulation always make it more economically productive for the beneficiaries to spend time on them than for anybody else to bother.)

        1. SHG Post author

          This isn’t an argument. It’s more what I would expect from the guys who point at the fringes on the flag. Remember, just because you don’t know about it doesn’t mean it didn’t happen. And as for vets, they actually learn stuff in school and can kill animals if they screw up, which upsets people on occasion.

        2. KP

          I have sat around a table with my competitors in an industry where the topic of discussion was how to raise the entry price so fewer people would try to get in. ‘More regulations’ was the answer of course. We were ‘offering consultation’ to a Govt Dept that was setting up regulations over us.

          I expect that most companies already in an industry would demand regulation to get rid of the cheap competition.

          The consumer loses both ways!

          1. SHG Post author

            Not to repeat myself for the hard of thinking, but you’re not in a learned profession. You’re not a physician. You’re not a lawyer. Why do I write words in posts only to have every shit-for-brains ignore them and dive down their own personal rabbit hole?

            You are absolutely entitled to discuss your industry’s views and actions, but what the fuck does any of that have to do with my post, and you are neither entitled to my bandwidth nor soapbox to whatever orthogonal crap comes into your head.

  7. BlackBellamy

    That’s an awesome study and confirms what I already knew when this morning I become a charlatan airline pilot. Think of the benefits to consumers as I lower their prices right into the ground.

      1. B. McLeod

        Plus, the airlines aren’t going to lower the prices just because their pilot is going to crash the plane. Planes are expensive, and dead passengers can’t be maneuvered into “upgrades,” so they will actually need to raise prices to get as much as they can for that connection to the final destination.

        1. SHG Post author

          Planes being expensive is the only saving grace in trusting that the pilot wasn’t the guy who screwed up your braids last week.

  8. Erik H

    The old joke is “what do you call the lowest-GPA least-competent graduate of Harvard Medical School? DOCTOR!” But that joke works because medical school is an incredibly tight filter, and it’s hard as hell to get in.

    Law school.. well. What do you call the guy who squeaked into a t4 with a 135 LSAT, where he pulled a C- average–and that with an ADA extra-time accommodation. He eventually graduated near the bottom of his class after five years, and took the Mass. bar four times before passing (it’s ~90% pass rate). Perhaps you’d call him a lawyer, but this time the joke’s on you.

    The word board-certified surgeon around is still a better surgeon than almost everyone else. The worst lawyer around, not so much.

    1. SHG Post author

      And if that same guy didn’t have to go to law school, didn’t have to pass the bar, but could hang out a shingle at will, are we better off? As I said, it’s minimum competency. Not a very high barrier to entry.

      1. Erik H

        Yes, I think we’d be better off than we are now.

        In order to make a cogent “consumer protection” argument for licensing, you need the licensing regime to be strict enough to actually protect consumers. Otherwise you just drive the price up without an associated benefit.

        My preference is for stricter and/or graded licensing (for example, you might have both a graduate and undergraduate law degree, as in Europe, or even three levels of licenses.) That allows you to be stricter within the licensing and allows you to better match it to reality.

        But if the option is “what we have now” or “nothing,” I vote for “nothing.” And yes, I think folks would be better off.

        Obviously things will adjust. People would care more about degrees, for example–this would probably tamp down on the glut of new lawyers who can’t pass the bar. There would be some new voluntary membership organizations that spring up to provide some certification; perhaps you can’t get a “Felony Defenders of America” membership unless you have tried at least 10 jury trials to a NG verdict as lead counsel.

        But by and large it would allow people to make their own decisions about how to allocate risk/benefit, and I think that’s worthwhile.

  9. Curtis

    Assume you are a poor, innocent defendant in a place where the public defenders are overworked and will always recommend a plea. You cannot afford a lawyer but you could afford an unlicensed pseudo-lawyer who is highly recommended by your brother-in-law. Would it be worth the risk?

    1. SHG Post author

      When you introduce additional factors (overworked PDs), it’s apples and oranges. If your unlicensed pseudo-lawyer is similarly overworked and will always recommend a plea, then you have a head to head comparison.

      1. Curtis

        One of us is misunderstanding the other.

        The reality is than many PD are overworked. In my hypothetical situation, I am assuming the pseudo-lawyer will have time to actually work for the defendant at a rate that the defendant can afford. The pseudo-lawyer may or may not be competent. Would it be better for the defendant to take a risk on a pseudo-lawyer of unknown quality who will try or take the “safe” route of using a PD who is too busy?

        1. SHG Post author

          Since it’s my house, it’s kinda your job then to make me understand what you’re talking about. If you have a point, make it. If not, have a nice day.

    2. zoe

      In regards to your case, you can assume that the certified lab tech from the accredited crime lab would not get the scientific analysis wrong (or mistakenly swap samples or use incorrect controls or use expired chemicals or smoke the weed they are testing while in the lab). So you’ll have to take the plea that the prosecutor offers because certification + accreditation = unbiased God-like Ph.D.

        1. zoe

          Did you mean layman as in juries? I’ve seen juries believe the opinions of forensic hypnotists just because the hypnotist was “trained and certified.”

  10. Charles

    “That’s why consumers are better off in a market with charlatans…”

    “Consumers” means all of them collectively, not each individual consumer. “Better off” means they spent less on worse service. Got it.

    Yet we already give every litigant the right to retain the greatest charlatan of them all: themselves. And they aren’t even cheap; they’re free.

    Of course, if they wanted to do a study about abolishing state-by-state licensing, that might be worth a read.

    1. SHG Post author

      At least we now have the interwebs to find and vet practitioners for their mad skillz. It’s totally reliable.

    1. SHG Post author

      I suspect his charlatan knows he’s no good but pretends to possess competence. Problem is that far too many suck but don’t realize it. His charlatan is malevolent. Others are well-intended but just as bad.

  11. WAN

    “Consumers are better off in a market with charlatans — and skilled workers are worse off.”

    Sure, some percentage would be better off (though it would be difficult to statistically quantify this). Many others would be worse off. But this is merely reshuffling the deck with the effect being, at best, a big cost to the system’s integrity and failed clients who deserved better.

    I can think of in-roads that could be made into the legal system by non licensed lawyers – perhaps training in a specific area of the law where one would be allowed to have a limited practice. Currently, law students get limited licenses in many states for legal services systems. There are certain barriers that can be bent to allow for more and better access to the legal system. Opening it up entirely to anyone (with AVVO and LinkedIn and 100 Best and Superist Lawyers being the “best” ratings system) would be chaotic and in many fields, dangerous and disastrous.

      1. WAN

        I was going to review the entire archive first but then I decided I didn’t have the month to take off of work.

        Then I was gonna laugh at your reply, but I got triggered and broke down shaking. Literally.

  12. Skink

    Well, this went way the fuck off the rails. The train is in the gulch. Good for it.

    Here’s how this works: if I get arrested in NYC, I’m paying SHG because I don’t want to go to R.I. If SHG is dead, I don’t want to be stuck with some dolt. If there is no licensing or oversight, dolts abound. When I’m in jail, and trying to replace SHG, I don’t want to ferret-out the dolts because I can’t–I’m in jail.

    1. SHG Post author

      If readers here can’t focus hard enough to follow a linear thought, what does that say for the unlicensed dolt who would hold your life in his hands?

          1. Skink

            Nope, but I will put something in the tip jar. Everyone should hit the orange button to the right, just for sending this thread to Bolivian.*

            *Mike Tyson on his plans after losing to Lennox Lewis: “I don’t know, man, I guess I’m gonna fade into Bolivian.”

  13. losingtrader

    “Walmart would be fine because they would protect their liability by hiring competent folks. Shit, it could just buy a hospitaL”

    You speak…and Walmart listens…..

    (see WSJ today– )

  14. KGB

    I’ll open myself for target practice, my wife’s allowed everyday, so why not let others in on it for a little bit.

    Why couldn’t “the free market” come up with various accrediting bodies other than the bar and let the consumer choose who represents them? It is their life, their freedom, is it not?

    I’m not limiting this to the legal or medical professions, but licensing has become a racket in many ways.

    Times have changed over the past 20-30 years and there’s a heck of a lot more resources for folks to review when making a decision. Personally, I don’t even have the time or inclination to write a review on a book I enjoyed…..or thought sucked, but that’s just me.

    I’m not implying Yelp would be my “go to” when faced with a murder rap I didn’t commit, but it seems to me that licensing, in general, has become a method with which government sells one the right to do something they already game the right to do.

    There are going to be competing agencies that vet their members and consumers can decide. Are folks going to get screwed? Yup. But they are already, and their financial options are often severely limited, as it stands.

    I suspect there’s got to be a better way. Time will tell.

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