The Faculty Lounge

Zuckerberg and Taxes

Today's Times includes an article that describes how Facebook will recognize a huge tax benefit when Mark Zuckerberg exercises some options later this year in advance of the company's IPO.  When the options are exercised, the company gets a deduction equal to the spread between the fair market value of the stock received by Zuckerberg and the low exercise price he pays.  The value of this deduction in the form of tax reduction is roughly equal to 35 percent (the corporate tax rate) of this spread.  There has been some recent uproar over this result because the company gets the huge deduction without laying out any cash.  But what this uproar seems to neglect is that Zuckerberg pays ordinary income tax on the same spread at the same time, plus employment taxes, resulting in a 37.9 percent tax liability.  So, the option exercise is a net winner for the government.  (This is not to say that the current taxation of options is perfect; option grants are tax-advantaged, but the analysis is much more nuanced and the advantage much smaller than the uproar has suggested.)

On the other hand, when Zuckerberg sells his founders' stock (the stock he received very early on), he will recognize capital gains (taxable at 15%) and the company will get no deductions at all.  This prospect has also created some uproar, as much of the gains can be attributed to Zuckerberg's labor.  But, on a net basis, Zuckerberg's receiving founders' stock instead of more options will have made the government lots of money because Zuckerberg will pay a bunch of tax and the company will not get any tax benefit.  

The problem with the uproar in both cases is that it focuses only on one side of the transaction.  But, that's wrong when the transaction has a tax impact on both sides of the transaction.  Viewed from the company's perspective, options look like a huge tax windfall relative to founders' stock; viewed from the founder's perspective, founders' stock looks like a huge windfall relative to options.  What should be clear (I hope) is that they can't both be huge windfalls.

Brant Hellwig and I have a piece coming out in the Iowa Law Review that compares the tax consequences of issuing founders' options versus founders' stock.  In some cases (like Facebook), options are better; in other cases where the company's loss utilization is much slower, founders' stock is better.  In either case, the story is a lot more complicated than it appears if you look only at one side of the transaction.

A Few Ways NOT To Solve America's Unequal Access To Justice

“The very rich,” F. Scott Fitzgerald famously observed, “are not like you and me.”  True enough, Dorothy Parker reportedly quipped: “They have more money.”  Parker's remark also backhandedly lends some perspective on a genuinely serious contemporary problem receiving more currency than usual these days:  America's unequal access to justice.

We find ourselves at a sadly ironic moment in the history of the American bar.  After many years of increasing demand for lawyers, structural changes in the pricing and staffing of legal services that have been both exposed and amplified by the Great Recession have created a downdraft in the demand for new lawyers.  As a result, something like one-third of recent law school graduates have found it impossible to find or keep a job requiring or preferring a law license.  Some appreciable additional quantity of recent graduates have been able to find only episodic "legal process" piecework such as document review, often yielding relatively meager rewards, no security or benefits, and virtually no hope of meaningful training or advancement.  Talk about quiet desperation.

At the same time, for many years legal aid programs have been turning away substantial numbers of applicants for their services, not for ineligibility or lack of expertise, but simply for lack of the resources necessary to meet the poverty population's needs.  The recent slashes in the budget of the Legal Services Corporation (a congressionally created and funded entity that distributes money to programs providing legal services to the indigent), and plummeting revenues from states' IOLTA funds (Interest on Legal Trust Accounts, the funds many states derive by requiring depository institutions to remit the interest on lawyers' trust accounts to the state to fund legal services for the needy) resulting from swan-diving interest rates, have only made things worse.

The irony emerges when we lay these two points side by side:  There are currently tens of thousands of unemployed or underemployed recently-licensed lawyers, and hundreds of thousands of low- and moderate-income consumers in aching need of legal assistance with housing, employment, education, healthcare and government benefits issues (among other things).  Why, it would be fair to ask, has this excess supply not linked up with this excess demand?

One plausible explanation is simply the inverse of Dorothy Parker's rejoinder:  The poor are poor because they have no money.  As a result, an economist might easily conjecture, their needs provide a meager draw for the many lawyers in today's economy with no (or insufficient) work. 

Up to this point, I imagine that my readers (assuming one or the other of them isn't otherwise occupied) will consider this discussion obvious.  But it raises some potentially interesting implications:

First, a hat-tip to David Segal, the New York Times' cheerful basher of the legal academy and the organized bar with a striking knack for getting things almost exactly half-right, who in one of his recent jeremiads suggests that law schools' costs of meeting ABA accreditation standards have so raised the price of a legal education that graduates simply can't afford to serve the legal needs of the poor and middle class.  (Full disclosure:  I spoke with Segal at some length before his recent and widely remarked-upon New York Times piece about how law schools don’t teach “lawyering.”  The story completely ignored several issues with Segal’s perspective I had brought to his attention during our conversation that I thought he had agreed were worthy of consideration.  For the record, I am disappointed.)  Segal offers the alternative of the multi-tier system in the UK, in which there reportedly are different levels of licensure to practice law, with the most modest requiring only limited education at inexpensive institutions roughly equivalent to community colleges, and authorizing the holder to perform a correspondingly limited array of less complicated tasks.  I confess ignorance of the UK's professional licensing scheme (other than the existence of a mandatory two-year postgraduate apprenticeship for at least some practice certifications, which I take quite seriously); and I also confess that this multi-tier idea presents some genuinely interesting possibilities worth examining.  But the notion that it would make any significant dent in our current access to justice problems seems doubtful at best. 

Why?  To reiterate, the poor are poor because they have no money.  The hundreds of thousands of American families currently facing foreclosure can't afford to pay their mortgages.  Obviously they can't afford to pay attorneys, even if they could get them at minimum wage.  To put it slightly differently, if there were any paying market to provide legal services to low- or moderate-income consumers (outside legal aid, whose shrinking resources come from sources other than clients) thousands of recent law graduates would be rushing in to serve it.  In fact, what is striking about the current excess supply of lawyers is that it has not apparently found any substantial untapped lower-price market even among the middle class.

The obstacle is not that these new graduates have large student loans to pay.  Though many of them do, bear in mind that many recent government-funded student loans require the borrowers to pay only a percentage of whatever income they earn, rather than a fixed monthly amount.  More importantly, most unemployed law graduates understand that the best way to clear a path to a more satisfying and remunerative law job is to get actual experience doing legal work, even at subsistence wages; and that the surest way to make yourself less competitive and eventually unemployable in the legal job market is to lie fallow and do nothing (or to put food on the table with work that makes no use of the expensive diploma hanging over that unsightly crack in the wall).

Please understand that I am in no way suggesting that our unemployed law graduates are lazy, or stupid, or elitist.  In fact, I believe exactly the opposite--I think a great many are doing everything they can think of to address a terribly difficult situation, bringing tremendous effort, initiative and creativity to bear day after day after day.  Which is exactly why it ignores reality to recycle old suggestions that all we need to do to moderate the cost of legal services and meet currently unmet needs is lower the cost of entering practice.  (Examples include Segal’s New York Times article referred to above, and the buffoon at Brookings who recently enjoyed his fifteen minutes of fame advocating—as if it were a new idea—the abolition of any license to practice law.)  Excess capacity already exists and has effectively left those problems untouched; why would you want to create even more, even if it spawned none of the serious externalities these suggestions drag into the picture?  There may be other reasons to consider adjusting the barriers to entering the legal profession, but the ones most commonly advanced these days are refuted by current events.

--Bernie

Is Being in a Dysfunctional Relationship an Excuse for Not Filing Tax Returns?

Of course not.  

The New York Law Journal reports here on the case of former Sullivan & Cromwell attorney John J. O'Brien, the man who failed to report more than $9 million in partnership income over the period 2003 to 2008.  Here's an excerp from the NYLJ article:

The reason he initially fell behind, according to his lawyer, solo practitioner Russell T. Neufeld, was his involvement in a destructive relationship with his partner, Michael Phelps, who persuaded him to sink $3 million into Hudson Street Books, a rare books venture.

Mr. Phelps, Mr. Neufeld wrote in his sentencing memorandum, "is a very unstable, fragile and emotionally needy person" who was "particularly unstable" during the genesis of Mr. O'Brien's tax problems, on medication and prone to suicide threats and attempts.

"The business was a total failure and John O'Brien continued to pour bad money after good down its black hole—all in an effort to maintain his relationship with Michael and to try and keep Michael emotionally together," Mr. Neufeld wrote.

A psychologist who examined Mr. O'Brien for the defense concluded that "his persistent fear of losing Michael has caused him to become so overwrought with anxiety and depression that he lost his ability to make a rational choice."

Read the full NYLJ article here.  

It sounds like Mr. O'Brien had plenty of other issues to confront, so the reporting (or perhaps the defense) may have over-emphasized the relationship troubles.   If being in a dysfunctional relationship were an excuse for failing to report taxable income, very few tax returns would be filed at all!  

Does the Economics of Law Practice Matter to Law Schools?

I return to the mysteries of law-firm economics after a hiatus to attend to three speaking engagements and complete the academic term (in other words, as an excuse to interrupt grading my Contracts exams).  A belated shout-out to my colleagues Anne Klinefelter and Andrew Chin, and to the editorial board and staff of the North Carolina Law Review, for an exceptionally well conceived and executed Symposium on Social Media (which was one of those speaking engagements)--watch for the Symposium issue of the NC L. Rev. coming this spring for some refreshingly novel and interesting takes on what is elsewhere becoming an overworked topic.  (You won't see a paper from me in that issue.  My topic at the conference, legal ethics in the social media environment, has already been admirably well explored in print and online by others.)

I want to stress how much these issues of practice economics actually matter to legal educators.  Virtually all of our students attend law school with the general aim of practicing law.  A great many end up in private law firms, large or small, or (usually a bit later in their careers) in corporate law departments.  The demand for lawyers in such positions (that is, for individual and corporate legal services) fundamentally affects our students' prospects for gainful employment. 

A bit more specifically, the overall demand for such services affects the overall availability of legal employment, and the distribution of that demand across different categories of work affects the availability of different kinds of legal jobs.  Thus when, as now, there is a significant contraction in at least one portion of the private sector--and here I'm referring to the large number of BigLaw layoffs in 2009 and 2010, and the contemporaneous and continuing substantial reduction in the rates of new hiring at larger firms--recent graduates with strong conventional qualifications who previously filled those BigLaw positions are now competing, and vigorously, for positions in smaller firms and government for which there was previously less such competition.

Put somewhat differently, there are fewer law jobs for recent graduates, and appreciably fewer such jobs at the higher end of the pay scale.  It's hardly rocket science to suggest that this affects the economic value of a law degree:  From behind the proverbial veil of ignorance, a student's chances of securing a job that supports the cost of three years' tuition, living expenses and forgone income and work experience are substantially less today than they were five years ago. 

This is by no means the whole story, of course.  Some prospective law students have far brighter economic prospects ex ante than others.  And economics is certainly not the only reason why people consider law school (though we have empirical data confirming the common-sense apprehension that a substantial number do weigh it as a substantial factor in their decision). 

But if the economic value of a law degree is falling overall (and I suggest to you that it is irresponsible to imagine otherwise), in a rational market you can expect fewer people to pay the rising cost to obtain it.  It is far too early to say "I told you so," but there have been double-digit decreases in law-school applications across the board this year over last (though we must bear in mind that last year saw record increases in law-school applications and LSAT administrations as college seniors confronted a horrific job market with an effort to settle into a three-year holding pattern). 

This is having some obvious effects on the legal academy.  The ability of law schools to continue to charge high tuitions--and continue to pay their faculties salaries far higher than those typical in the arts and sciences--depends on making the end product (the law degree) worth it.  Since many universities share in their law schools' economic surpluses, the universities care too.  Legal employers have been complaining  about the utility of the education with which their entry-level employees arrive for well over a generation, but for the first time in memory it would be fair to say that many law schools are listening, and questioning their mission.

One thing I am NOT suggesting is that legal employers know exactly what they need, and how we could be supplying it.  I'll try to explore in future posts why things are nowhere near this simple.  But that leaves everything up for grabs:  What questions should we be asking, and how should we be seeking the answers?  This is an obviously difficult inquiry, and I will try to suggest in future posts that it's even harder than it seems.  But make no mistake:  we are near the front end of a period that I believe will prove to be the most fraught with rapid change that the American legal profession has ever seen.

What a great time to be a part of things!

--Bernie

More on Law Schools from the NYT

Here.

Welcome to the Blogosphere

In recent days we've been joined in the blogosphere by The National Law Journal's Law School Review (A Forum On Legal Education).

From Karen Sloan's initial post dated October 27:

Welcome to The National Law Journal's Law School Review, which is an online forum examining the current state and future of legal education. We want to address the question, "Are law schools in crisis?" If the answer is yes, what are the most pressing problems and how should educators and regulators address them? If the answer is no, what is it that law schools are doing right? Is this enough to ensure their future viability? We have assembled a panel of experts to share their thoughts on the subject (see the roll call of contributors on the right), and we hope to create a robust dialogue and exchange of ideas.

The list of contributors includes William Henderson, Brian Tamanaha, Michael Olivas, and others. 

You'll find the home page link here.

The wisdom of regulating lawyers (vox populi edition)

The New York Times recently published an Op-Ed piece from a fellow at the Brookings Institution extolling the various social miracles that would transpire if we eliminated legal education and bar licensing as a condition to the practice of law.  You can see it here (“Are Law Schools and Bar Exams Necessary?”).  Three Letters to the Editor commenting on the Op-Ed are reproduced here.  Each takes a distinct point of view that is as polemic as the original Op-Ed.  Together they comprise a very good and admirably succinct background to a debate on whether law licensure is necessary, what its costs and benefits are, and how well our existing system takes those costs and benefits into account and appropriately balances any tradeoffs.  Those among us who teach Professional Responsibility may find this a valuable resource to ground class discussion on the subject.

While in my own view there is a great deal more, and a great deal less, to each contributor's position than their statements suggest, I offer only one comment on these materials here.  Conspicuously missing from any of the position pieces (except obliquely in the first Letter to the Editor) is any assessment of the significance of what is in my view the single most salient factor influencing this debate--the fact that it is extremely difficult for nonexperts to determine with any accuracy the quality, efficiency or even need for most of the professional services lawyers provide.  Put slightly differently, the eventual result of and the buyer's satisfaction with professional services are exceptionally noisy quality signals.  It is little short of astonishing that the "economist" from Brookings who gave us the original Op-Ed should have assumed this issue away, and instead assumed that crowd-sourced lay assessments would adequately inform the market and police for quality and competence. 

Law is hardly unique in this regard, of course.   Medicine is another obvious example of professional services whose quality and need are very difficult for lay buyers to judge in most instances, both before and after the services are provided.  And this phenomenon is a matter of degree for any service involving skill and expertise--think of the extent to which most of us are forced to rely on the judgment of our auto mechanics, plumbers and electricians.

Which is not to suggest that our current requirements for law licensure, or our policing of licensees, are currently optimal in any particular respect.  But the world rarely makes any issue of importance as simple as we all might wish.

Bernie

College Tuition in the News

MSNBC news story here.

TIME magazine story here.

And any college/university that participates in federal student-aid programs must provide on its website a net-price calculator no later than this Saturday, October 29, 2011.  Additional reading here and here.

(Astute readers will notice I'm including this post under the "fear" category.)

NYT Room for Debate: "Tribal Sovereignty v. Racial Justice"

Today's New York Times features a roundtable discussion on the issue of race and membership in Indian tribes.  Link is here.

Synopsis:
When the Cherokee were relocated from the South to present-day Oklahoma in the 1830s, their black slaves were moved with them. Though an 1866 treaty gave the descendants of the slaves full rights as tribal citizens, regardless of ancestry, the Cherokee Nation has tried to expel them because they lack "Indian blood."

The battle has been long fought. A recent ruleing by the Cherokee Supreme Court upheld the tribe's right to oust 2,800 freedmen, as they are known, and cut off their health care, food stipends and other aid in the process.

But federal officials told the tribe that they would not recognize the results of a tribal election later this month if the citizenship of the black members was not restored. Faced with a cutoff of federal aid, a tribal commission this week offered the Freedmen provisional ballots, a half-step denounced by the black members.

Is the effort to expel of people of African descent from Indian tribes an exercise of tribal sovereignty, as tribal leaders claim, or a reversion to Jim Crow, as the Freedmen argue?

Contributors include:
Matt Fletcher (MSU)
Carla Pratt (Penn State) 
Rose Cuison Villazor (Hofstra)
Kevin Noble Maillard (Syracuse)
Joanne Barker (SF State)
Cara Watt-Cowan (Cherokee Nation)
Heather WIlliams (Cherokee Nation)
Tiya Miles (U Michigan)

----
Graphic: my great-great-grandfather, Jimmy Carter, c. 1885, Wewoka, OK

Hurricane Aftermath in Lower Manhattan

image (c) Getty Images; source here

Hurricane Irene has come and gone from New York City.  In Lower Manhattan, where I live, damage seems to be minimal.  Both the Hudson and the East Rivers broke their banks, but receded relatively quickly. Before the storm, sanitation crews had been active all over Lower Manhattan clearing drains.  Those efforts no doubt helped street drains absorb excess water.  (The drain in front of my building that usually backs up with even a minor rainstorm was running freely yesterday; thanks DSNY!) 

The evacuation order for Zone A has been lifted.  There are people out on the streets, but other than the corner market in my neighborhood, the only other place open was a bar (and it was beautiful!).  Public transportation is still shut, with no word on when subways will be up and running.  Taxis and cars are out in abundance.

The morning commute likely will be a mess, warns Mayor Bloomberg (here).  Because of the city's anticipated public transportation challenges, New York Law School has cancelled classes tomorrow. Cardozo and Pace will make the call later tonight.  Touro and Fordham will be open.  I couldn't quickly find any news on Columbia, St. John's or NYU.

 

Hurricane Preparations in Lower Manhattan

Here in New York City, Mayor Bloomberg has ordered the mandatory evacuation of approximately 370,000 people from  low-lying coastal areas (so-called "Zone A" areas, marked in orange on the map above, along with all of the Rockaways) before 5:00 p.m. today.  See the NYT here for more details.  Subways and the airports will be shutting down at noon.  Evacuation centers have been open in designated schools, gyms and community centers since last night.  Most other businesses city-wide will shut down at noon today along with public transportation.

I live close to, but not in, Zone A. My particular block is not subject to mandatory or recommended evacuation.  I walked  this morning for about an hour through Zones A (orange) and B (yellow) in Lower Manhattan. Almost all restaurants and shops -- other than grocery stores -- are closed in Zone A.  In Zone B, I saw open two restaurants and no stores other than grocery stores and corner markets.  Judging solely by foot traffic and lights on in apartments, it appears that evacuation-notice compliance is high in Lower Manhattan.  A residential facility for seniors in my neighborhood is completely dark.  

From talking to friends and neighbors, my sense is that for many residents, the memories of September 11 are too fresh to have to be told twice to leave.  Even so, there are plenty of people still occupying their employment posts in the neighborhood -- hi-rise building staff, maintenance workers, garage attendants, grocery store clerks.  Depending on the specifics, they may not have the option to leave.

For now, we wait.  In the meantime, I give high marks to the Mayor for clarity and communication.  Regular press releases, news conferences, television appearances  have included clear instructions about when and how to evacuate, an emphasis on assembling an emergency kit in case one must leave home quickly, and requests for everyone to check on neighbors, especially senior citizens and others with special needs. 

Hello Irene!

Those of you who, like me, teach along the coast know exactly to whom I am referring. Irene is the name of the first hurricane of the 2011 Atlantic hurricane season. Current models show Irene strengthening into a Category 3 storm before hitting the U.S. later this week.

The Weather Channel - my near constant companion during hurricane season thanks to the free app - currently predicts landfall in the "Carolinas" on Friday night and/or Saturday. Unfortunately, for those of us here in Charleston, the "Carolinas" is a rather large geographic area, which means I may see some clouds on Friday, get a bad rain, or be 100 miles from home because I evacuated.

I wish all of us in the predicted path of Irene the best of luck as we watch this play out over the next several days.

Diogenes's Spatula?

Recently, there’s been controversy—make that, a lot of controversy—over the anonymous LawProf who has excoriated law schools for running a “scam” where they ostensibly bilk naïve students of hundreds of thousands of dollars by promising that jobs, even really good ones, await at the end of the three exhausting, sometimes tumultuous, years. 

I don’t want to take up whether that is or isn’t true.  But it struck me recently that one of my quick summer reads, Anthony Bourdain’s Medium Raw, does what LawProf did to culinary schools.  Bourdain eagerly indicts cooking schools as a big racket and that no cook should sensibly expect to recoup his loans by going to one of them. 

Here’s a taste, so to speak:  “You’re about to take on $40,000 to $60,000 in debt training for an industry where—if you are lucky—you will, for the first few years, be making $10 to $12 dollars an hour.”

More:  “In fact, if you are really, really lucky—one of the few supremely blessed with talent, ability, and great connections deemed worthy enough to recommend you to one of the great kitchens of Europe or New York for your post-school apprenticeship—you will essentially be making nothing for the first couple of years.  You will, once living expenses are factored in, probably be paying for the experience.”

Wow, huh? 

So my question is:  are there any schools out there which do provide a realistic return on their tuition investment?  (it’s an open question, not at all rhetorical.) If the answer is no, then, I guess I don’t quite see what all the fuss is about for law schools. 

 

Judicial Humor

For those of you who may have missed it, check out Judge Martin Sheehan's decision in Kissel v Schwartz in Kentucky.  The decision is extremely short and certainly worth a read for a quick dose of humor.

H/T to my colleague, Mike Benza!

Cancer Doesn't Discriminate But Federal Law Does

In my morning paper today - the local Charleston Post & Courier - was a surprising story about Medicaid coverage for breast cancer.  Raymond Johnson was diagnosed last month with breast cancer.  Uninsured, he applied under the federal Breast and Cervical Cancer Prevent and Treatment Act of 2000 for Medicaid benefits.  But the state Medicaid agency denied his request.  Why?  Because he is a man.  

The federal law only permits Medicaid benefits to uninsured women who need treatment for breast cancer.  According to the article, the state Department of Health and Human Services has repeatedly urged the federal government to change this policy to no avail.  The American Cancer Society reports that about 2,140 new cases of invasive breast cancer in men are diagnosed each year.    

Man up!........Man up?

Thanks to Dan for letting me guest blog.  Alas, I immediately repay his kindness by exploiting this opportunity to post on something bleakly provincial to my own scholarly preoccupations:  manliness.  Specifically, manliness in the context of law and literature.  I know, I know.  Here we are, in the debt crisis, facing the impending end of Western civilization, and I want to blog about law & literature. . .regarding. . . “manliness.” (isn’t this the shameless epitome of the self-indulgent academic?) 

But so much of the debt crisis is suffused with the idiom of manliness, isn’t it?  Liberals cry that Obama needs to “man up” and confront the Tea Party while Boehner, even for a dude who doesn’t mind having a good ole’ public cry now and then, once committed, can’t stand down from his manly posture without embarrassment. 

But this post isn’t me expounding my views on manliness (ummmm, you can find that here, incidentally).  It’s rather me asking for your help.  I’m trying to put together an annotated bibliography, provisionally titled, “Manliness:  A Law and Literature Perspective.”  So, for example, I would include—would have to include—Mario Puzo’s The Godfather.  Talk about manliness, it has every aspect of it:  the patriarch, the reckless man-child, the avuncular bully, the callow son trying to prove his manhood, the faltering wimp, you name it.  And all of it takes place in the context of law.  Guys trying to violate it, bribe it, evade it, enforce it.  Much of the law, then, presents obstacles and opportunities for and extensions and emanations of manliness. 

So, I need your help:  what do you think would be good pieces of literature to include in such a bibliography of manliness in law and literature?    

Democracy and Defense Counsel

On the BBC News this morning, I heard an interview with Geir Lippestad, the lawyer for Anders Behring Breivik.  Breivik has admitted to last week's mass-killings in Norway.  Here is my transcription of a portion of that interview:

[Reporter:] You, as a lawyer, are, in a sense, at the receiving end of a lot of hostility on a massive scale.  How do you feel?

[Mr. Lippestad:] Well, Norwegian people are loving people and caring people and if you look into the Internet right now, you can see that people value the democracy – the principle of democracy – very high. And the legal system is part of that democracy, and I am proud of being part of a system that is strong, and proud to be in Norway now and receive lots of comments that [a]defender’s work is important.

A video of that interview is here.  The (U.K.) Telegraph reports (here) that Mr. Lippestad was reluctant to accept the case, after police notified him that the defendant had requested Mr. Lippestad's services.

For several hours he hesitated and discussed with friends and family whether to defend a man who only hours early had massacred 68 young people on a summer holiday island.

But in the end his civic instincts trumped his initial horror. "I believe that the legal system is very important in a democracy and someone has to do this job," he told reporters this afternoon.

That's moral mettle.

Losing the Art of Cover Art?

A while back I blogged about the differences between browsing real life paper books in bookstores and browsing for good reads on e-readers.  With the recent announcement of the demise of Borders (which pretty much just leaves Barnes and Noble and local libraries in my neck of the woods), I started thinking again about what we're losing with the demise of the brick and mortar bookstore.  One thing I wonder about is what will happen to cover art if we all move to e-readers?  Obviously, most current e-readers (and audiobooks) still rely on cover art to match the hard copy book.  Some e-readers even make the virtual bookshelf appear like a real bookshelf with cover art and all.  However, if we end up losing the physical copy book altogether and everything ultimately becomes electronic, will there be any need for cover art?  How much does cover art influence you in purchasing or reading books?  Might cover art be replaced with something more interactive like mini-videos about the author or the book?

NY Times Room for Debate: "The Case Against Law School"

The New York Times is featuring a discussion in "Room for Debate" today on the cost of legal education and whether  law school should be shortened to two years instead of three.   Here is the synopsis:

Law school tuition is rising four times as fast as the cost of an undergraduate degree,which itself is soaring. Despite the high price, students are still flocking to law schools, even if it means going into heavy debt to enter a tight job market with few top-paying openings.

Should the standard three-year model of legal education, followed by taking and passing the bar exam, be the only path toward becoming a lawyer? Could law school be shortened, or should those three years of classes have a different focus?

Contributors include:
David Van Zandt, President of the New School
George Leef, Pope Center for Higher Education Policy
Kevin Noble Maillard, Syracuse University
Rose Cuison Villazor, Hofstra Law School
David Lat, Above the Law
Geoffrey Stone, University of Chicago
Linda Greene, University of Wisconsin
Brian Garner, editor of Black's Law Dictionary.  

 

 

 

Safely conveying the Nation's junk mail

Congress has the power "to establish Post Offices and Post Roads," but that doesn't mean it should.

A recent Q&A with U.S. Postmaster Patrick Donahoe explains that the Post Office's financial woes are due to a decline in first-class mail, owing to the advent of electronic communication. He also mentions a gigantic $5.5 billion payment due to the government in September for the funding of retiree health benefits. He won't be able to make that payment. The American Postal Workers Union, AFL-CIO, isn't happy about that and faults, in part, the requirement that the Post Office pre-fund future retiree's healthcare benefits.

Donahoe speculated that beyond cutting Saturday delivery (which has been on the table), mail delivery might eventually in 15 years need to be reduced to only three delivery days a week. At that point he envisions the Post Office's business will principally consist in doing two things: delivering packages and "hard-copy advertising," a/k/a junk mail.

FedEx, UPS, and DHL already compete with the Post Office in the package delivery markets. That means the U.S. Post Office's principal unique line of business would be...you got it, delivering junk mail. As Donahoe puts it, "there's always going to be a market for direct mail, because people like to get something in front of a customer's eyes."

Of course, if ForestEthics and other environmental activists prevail (and I hope they do), there may one day be a "do not mail list" to permit individuals to opt out from all the direct marketing.

But if all that unwanted junk mail stops, does this signal the end of the Post Office as we presently know it? The first-class postage model depends on cross-subsidization. Universal service at uniform rates isn't cheap. Urban mailers pay more than they should to mail the same letter than rural mailers. The fight over the Post Office will be an interesting but probably uneven political fight. Labor unions, rural state constituents and their filibustering senators, direct marketers, the stamp dealers lobby, and foreign postal offices will be pitted against management, urban constituents, and environmentalists. 

The way this scenario plays out will be a study in public choice theory. First, the Post Office hikes the price for the same services to unorganized individual users while cutting services visible to the same in symbolic ways (e.g. Saturday service) that direct end user anger at official Washington. Second, the Post Office makes the case to Congress (with union concurrence) that it can no longer pre-fund the retirement benefits and should no longer have to. The well-organized groups prevail on Congress and are successful with this strategy that buckpasses to a future generation of taxpayers and to a future Congress. The Congress obliges but in compromise requires significant reduction of retirement benefits for future hires, who are, of course, unrepresented in any of these negotiations. Finally, in some future Congress, as the Post Office continues to run in the red and the unfunded retirement benefits come due, the Post Office eventually argues to Congress that it needs to subsidize the post office directly, like the military, so that it can operate at a loss. That subsidization, in turn, may require an offsetting tax on unorganized individuals' email (let's call it a stamp tax) to support the federal agency now in charge of safely conveying the Nation's junk mail...