Are Lawyers Productive?
So I think it's worth considering how our jobs will affect society, not just our wealth.
Just kidding. But for some people, money isn't everything. Most of us don't think that income corresponds perfectly to social value. For instance, teachers aren't highly paid, but we think they are much more important than, say, advertising executives. Where do lawyers fit in on this spectrum? Unfortunately, I think they fit in near the bottom, at least in some sense.
To explain, let me draw on a model used by Murphy, Shleifer, and Vishny in their paper "The Allocation of Talent: Implications for Growth." The model is similar to theirs, but simplified.
Imagine a society with 24 citizens. 2 are capitalists, and the remaining 22 are workers. The workers range in intelligence from 10 to 20, with 2 workers at each intelligence level. There is a factory in which each worker can generate $1,000 worth of goods for each unit of intelligence he has. There is also a lawsuit between the capitalists, with damages estimated at $50,000. Each capitalist will hire a lawyer to represent him. The capitalist with the smarter lawyer wins. If the lawyers have the same intelligence, the case is 50-50.
You can pretty easily see that the smartest 2 workers are going to be the lawyers. The capitalists can afford to pay their $20,000 salaries, enough to lure them from the factory. If the capitalists could somehow agree to hire really dumb lawyers, they could save a lot of money. In the absence of such an agreement, though, they get into an "arms race" and end up hiring really smart people. The cost is that society has $20,000 less in wealth (difference in intelligence = 10, times $1,000 units at the factory, times 2 workers).
You might say that I've just assumed what I set out to prove, by not making society's welfare dependent on the work of lawyers. True, but the model should give you an intuition about why lawyers can be highly paid and yet add very little to social welfare: there is an "arms race" in which smarter lawyers are hired not because they create wealth, but because they can shift wealth from one party to another. This expensive chase after wealth does little or nothing to make new wealth, it simply transfers it (at great cost) from one party to another.
This is why I sometimes say things that seem ridiculous, as when I told Ellen that I thought i-bankers might be more socially valuable than lawyers. I-bankers make their money by putting capital to its most productive use, at least in theory. They create value, and are thus able to consume a lot. Lawyers don't necessarily create any value at all.
None of this is to say that law itself, and lawyers in the abstract, aren't valuable. The point is that the marginal value of another smart lawyer might actually be negative. It's a tad depressing, but I think it's true.
Just kidding. But for some people, money isn't everything. Most of us don't think that income corresponds perfectly to social value. For instance, teachers aren't highly paid, but we think they are much more important than, say, advertising executives. Where do lawyers fit in on this spectrum? Unfortunately, I think they fit in near the bottom, at least in some sense.
To explain, let me draw on a model used by Murphy, Shleifer, and Vishny in their paper "The Allocation of Talent: Implications for Growth." The model is similar to theirs, but simplified.
Imagine a society with 24 citizens. 2 are capitalists, and the remaining 22 are workers. The workers range in intelligence from 10 to 20, with 2 workers at each intelligence level. There is a factory in which each worker can generate $1,000 worth of goods for each unit of intelligence he has. There is also a lawsuit between the capitalists, with damages estimated at $50,000. Each capitalist will hire a lawyer to represent him. The capitalist with the smarter lawyer wins. If the lawyers have the same intelligence, the case is 50-50.
You can pretty easily see that the smartest 2 workers are going to be the lawyers. The capitalists can afford to pay their $20,000 salaries, enough to lure them from the factory. If the capitalists could somehow agree to hire really dumb lawyers, they could save a lot of money. In the absence of such an agreement, though, they get into an "arms race" and end up hiring really smart people. The cost is that society has $20,000 less in wealth (difference in intelligence = 10, times $1,000 units at the factory, times 2 workers).
You might say that I've just assumed what I set out to prove, by not making society's welfare dependent on the work of lawyers. True, but the model should give you an intuition about why lawyers can be highly paid and yet add very little to social welfare: there is an "arms race" in which smarter lawyers are hired not because they create wealth, but because they can shift wealth from one party to another. This expensive chase after wealth does little or nothing to make new wealth, it simply transfers it (at great cost) from one party to another.
This is why I sometimes say things that seem ridiculous, as when I told Ellen that I thought i-bankers might be more socially valuable than lawyers. I-bankers make their money by putting capital to its most productive use, at least in theory. They create value, and are thus able to consume a lot. Lawyers don't necessarily create any value at all.
None of this is to say that law itself, and lawyers in the abstract, aren't valuable. The point is that the marginal value of another smart lawyer might actually be negative. It's a tad depressing, but I think it's true.
posted by James | 5:01 PM
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