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Lawyers, Problem Solvers or Rent Seekers?

Balatarin

 

In a cemetery, a man was walking back to his car after visiting the grave of his father when he noticed a tombstone inscribed with the words: "Here lies a lawyer and an honest man." He said to himself in surprise: "I didn't know they could bury two people in the same grave!"

While this may be a fanciful joke, it nonetheless underscores an important concern--the extent of public dissatisfaction with the legal profession. According to a report in the latest issue of The Economist magazine, "Lawyers generate more hostility than the members of any other profession--with the possible exception of Journalism." Lawyers are sometimes accused of "rent seeking", which is an attempt by certain individuals or business firms to gain income undeservingly without making positive contributions to the economy. In other words, they become wealthy not by creating wealth but by snatching wealth away from others.

 

Rent seeking creates distortionary consequences for the economy in many ways--higher prices for example, because it is often carried out through exorbitant lawsuits against business firms and the costs are passed on to consumers. This is especially true for mighty corporations like pharmaceutical companies, which are also shielded by the patent system. Frivolous lawsuits are often maliciously brought on by companies against their rivals, especially companies in high-tech areas. They spend exorbitant amounts of money and resources suing one another for patent infringements. In a recent highly publicized lawsuit, the jury awarded Apple $1 billion in damages to be paid by Samsung for allegedly copying some aspects of Apple's wildly popular iPhone and iPad. Given that America is the world's largest market for consumer electronics, such costly court cases will have a widespread impact on American consumer. Obviously, lawsuits like this are instigated by lawyers who will gain handsomely regardless of the outcomes. They may also encourage companies to file even more lawsuits in anticipation of monetary gain as well as monopoly of power. Propagation of such cases can divert companies' attention away from focusing on their products and redirect it toward gaining easy money at the expense of their rivals.

 

While rent seeking can be accomplished through various channels, large companies have hired skilled lobbyist/lawyers to influence the course of politics and the laws and regulations enacted by the U.S. Congress, thus augmenting their rent-seeking ability. For instance, according to Joseph Stiglitz, a Nobel laureate economist, "There are more than 3100 lobbyists working for the healthcare industry alone (nearly 6 for every congressperson), and 2100 lobbyists working for the energy and natural-resources industries." Physicians are represented by more than 750 powerful lobbyists in Washington spending nearly $80 million every year to safeguard their interests according to New York Times.

 

The U.S. ranks at the top when it comes to the number of licensed lawyers.   There are currently 1,143,358 of them, one per every 265 people. Meanwhile, the inverse correlation between economic growth and the number of lawyers has been properly documented by some research; for example, see   http://www.csmonitor.com/1994/0215/15081.html .  

 

Dr. Stieglitz believes that people living in countries having fewer lawyers are economically better off and the country's economy grows faster. He maintains that "researches suggest that the main channel through which a high proportion of lawyers in a society hurts the economy is the diversion of talents away from more innovative activities (like engineering and science)". Another costly aspect of this problem is the use of scarce resources on frivolous litigation that serves no purpose other than to enrich the corporations and their lawyers.

 

Despite oversupply, the costs of legal service keep rising at usually twice the rate of inflation, according to The Economist Magazine. The mounting spending on legal services is partially due to additional demand created through vigorous advertising by lawyers seeking to find lucrative targets for possible lawsuits. Such solicitation efforts have been proliferating in the mass media - via commercials aired during the shows watched by most susceptible people - and particularly in the form of billboard advertising that is proliferating especially in the aftermath of Great Recession of 2008.

 

Economists tell us that excess supply of something should drive its price hence profit down, unless demand is successfully stimulated. Thus, considering the oversupply of lawyers, creating demand becomes a necessity for the survival and flourishing of the legal business. Soliciting business through adverting is a catalyst for creating a market for legal services that seem to be in a distressed condition. Understandingly, greed is always tempting and an innate trait of capitalism, but sometimes it drags capitalism in an asinine direction.

 

Lawyers, just like medical doctors, have to go through rigorous training and a time-consuming licensing process. They incur an immense amount of debt upon graduation. Once they finally begin practicing, they feel the need to generate as much money as possible to pay off that debt and make up the opportunity cost of the time they have invested in education and demanding internships. According to Economist Magazine, the proliferation of specialists has caused massive increase in the number of surgeries performed in the US, “400% in a little over a decade”. Like many other business people, lawyers often tend to create a market for real or imaginary problems because they have already a solution for them. The solicitation of business through advertising undertaken by an increasing number of lawyers may well be an indication of creating demand. Additionally, lawyers, like doctors, earn income when things go wrong. So, when there is a possibility of fleecing the public, there is a chance for frivolous lawsuits, the fertile ground in which greedy rent seeking thrives.

 

You be surprised or even outraged after reading the following story and may not be able to resist the temptation of vilifying the lawyers. It is about the extent to which some lawyers are willing to go to get the criminals off the hook by resorting to preposterous claims despite the fact that they are fully aware that their clients are guilty. Recently, a 16-yer old kid from an influential wealthy family killed four people in a drunk driving accident. He did not, however, get any jail term despite the heinousness of the crime, after a judge was convinced by his lawyers that he suffers from affluenza and thus not responsible for the consequence of his action! The judge ruled that the boy must attend an expensive rehabilitation facility paid for by his rich parents instead of going to jail, as sought by prosecutors, a 20-year sentence. Such a phony claim will set a bad precedence by creating a safety net for the rich kids who engage in reckless behavior without fear of the punishment.

 

It is, indeed, hard to convince some people that rent seeking is counterproductive if they have a big stake in perpetuating it.

 

Balatarin

varjavand @varjavand

Reza Varjavand (Ph.D., University of Oklahoma) is associate professor of economics and finance at the Graham School of management, Saint Xavier University, of Chicago.

USA

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JeffSmith

Jeff Smith Writer about geonomics.

Most politicians are lawyers. Lawyers have persuaded politicians to pass laws that make it a punishable offense for a non licensed legal expert to perform even a routine task. Lawyers have erected insider court proceedings that if anyone representing themselves fail to follow can be found in contempt of court. None of this is to facilitate justice for society but to fatten the pockets of lawyers.

Doctors use the same tactics of requiring licenses, punishing non conformists, and winning other laws to maintain their oligopoly.

What can the rest of society do? Get its government out of the licensing racket. Get rid of automatic limited liability so people in business would have to become responsible personally for their decisions to cheat. And, basically, share society’s surplus so it can’t be concentrated onto few major owners and corporations that hire the unscrupulous minions to do their dirty work. If people feel materially secure, perhaps those now tempted will be able to resist a career in lawyering. More at progress.org.

Mohamad.Purqurian

Mohamad.Purqurian Peace is not subjugation آشتی کردن تسليم شدن نيست

I read your clarification, and I scanned through a number of other comments. Yes, the article, and most comments are valid, but they all miss an important factor. The legal profession is "singled out" for dishonesty that is ubiquitous in almost all professions. The health care, insurance industry, financial system; you name it, and you will have ample dishonesty in public domain to talk about.

So, the issue is, again, a human attribute that manifest itself through "power" whether it is in a capitalist system or communist one, monarchy or theocracy, or any other system you could envision, you will have "individuals" hiding behind "entities" to abuse the system for self interest. The problem is the fact that these crooks have become so advanced and sophisticated to easily defy any checks and balances where it is said:

لطف حق با تو مداراها کند
چون که از حد بگذرد رسوا کند

That is why every now and then one of them is sacrificed to divert the public's attention from the fundamental issues.

varjavand

varjavand Reza Varjavand (Ph.D., University of Oklahoma) is associate professor of economics and finance at the Graham School of management, Saint Xavier University, of Chicago.

Wholeheartedly concur, that is the goal of this article, to draw attention to a bigger issue, should we allow the self-interest to take over every aspects of our life? If not, what kind of standards, if any, we should impose on market system?

baraitna

baraitna I was one of the very early members of your excellent organization. But because of your disagreement to publish an article of mine; I went away. My bio is finished but hope you read it when published (promised for October.

Yes, the dislike for the profession is almost universal. However, without them the corporations and some people would eat us alive!

I was nearly crippled by a medical doctor with bad (one could say criminal) diagnosis of a pain in my ankle. He ordered all sorts of unnecessary tests (mostly done in his favorite lab), injected various liquids in my ankle, sold me orthopedic shoes ....... none helped. He finally sent me to a Physiotherapist who asked "have you ever had a surgery?" "Yes" I said "ten years ago". "Oh" he said, "the pain is probably due to swelling caused by some lymph damage. When I confronted the foot doctor, he said he is glad HE found the cause. "No you didn't, the poor therapist charging only $40 did".

At the time I was living in Colorado where it is not practical to sue doctosr. Because of Doctors' lobbyists and this kind of anti-lawyer propaganda, a Coloradan legislation limited maltreatment suits to $360,000, which is exactly what it would cost the lawyer to bring the case to a close. Whether one wins or not is up in the air.

The correct diagnosis by the therapist cost me $30 to buy a therapeutic pair of socks which last me ten times a regular sock, and I wear it only on the leg with the lymph problem to control the pain causing swelling. I wish I was in California at the time.

varjavand

varjavand Reza Varjavand (Ph.D., University of Oklahoma) is associate professor of economics and finance at the Graham School of management, Saint Xavier University, of Chicago.

Rent seeking in medical profession is even more serious problem. It seems we have a more extensive problem in this country, a moral crisis.

G.Rahmanian

G. Rahmanian


Dear "Zendanian":

The excerpt was to show that "greed" has nothing to do with the status quo in the capitalist countries. It's the predominant economic system that gives rise to the existing social, political and cultural ills.

Also, in my opinion, saying that capitalism "has reduced the family relation to a mere money relation" does not amount to praising the economic system.

Zendanian

Zendanian An injury to one is an injury to all.

Are we denying the effect of short term profit on promotion of greed and corruption in today's world?
Financial crisis of 2008 is a good example of such promotion of greed. All those investment banker knew exactly that all those Collateral Debt Obligation CDO's they were bundling up in their banks and reselling it to the public were pure horse manure, but they kept doing it until they went bankrupt.

Capitalism doesn't just reduce family relations to a mere money relation, it also commodifies all human values and relations into things and objects. Why do you thing there's such a high level of alienation, dysfunctional relationships and drug and alcohol abuse in today's world?
Not only it commodifies our most personal relationships into things, turning humanity into alienated souls, if left alone & unregulated it will turn even water and air into commodities, through Privatization. See below:

Cochabamba Water War or the Water War in Bolivia,

http://en.wikipedia.org/wiki/2000_Cochabamba_protests

Zendanian

Zendanian An injury to one is an injury to all.

It's interesting to read Marx's praise for capitalism, as compared to feudalist backwardness. How about some of Karl's critique of capitalism & its structural crisis? Or is that too radical?

G.Rahmanian

G. Rahmanian


Here's an excerpt from Marx's The Communist Manifesto. Enjoy!

"The bourgeoisie, historically, has played a most revolutionary part.

The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his “natural superiors”, and has left remaining no other nexus between man and man than naked self-interest, than callous “cash payment”. It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom ― Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.

The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers.

The bourgeoisie has torn away from the family its sentimental veil, and has reduced the family relation to a mere money relation."

amirparvizforsecularmonarchy

amirparvizforsecularmonarchy I Love Waterfalls and Find One of the most humorous things in the world; is the notion that Americans are a greater force for good & more civilized than Nazi's, Mullahs and Communists.

The absence of either culture or politics is clearly visible in the USA, everything being money and how to make more of it, however in the UK the doctor is still working under the correct culture and humane values as is the dentist, the system pays the cash and it does not reward sales, but efficient solutions. "Democratic Systems" in practice are the pursuit of money above all else and are far more corrupt than Monarchies, in the worst case instead of having one crook, they have an entire class of crooks wanting to rule and not serve the people. They have one law for themselves and another for the people, this is the leading democratic system the USA.

amirparvizforsecularmonarchy

amirparvizforsecularmonarchy I Love Waterfalls and Find One of the most humorous things in the world; is the notion that Americans are a greater force for good & more civilized than Nazi's, Mullahs and Communists.

The difficulty is bridging the gap that exists among people who are taught one thing when reality is another, for example in say the UK, beggars are considered those who go around asking for money from people involved in their everyday business. They dress in cheap clothes and sometimes have notes written to ask for money.

Yet now due to "the progress of democratic systems" of government which know about what they are doing and what is going on within their highly regulated banking systems, the bankers are the beggars of the day, except they dress a lot better than the traditional beggar and they travel not to the local restaurant, but to remote places and enjoy people greeting them as if they were about to be saved by these people in suites only to realize they are there to beg and to steal the resources of the countries they visit. The lawyer and journalist at least has not yet been reduced to a beggar, like the banker, but give it a few years and don't hold your breath it may happen.

amirparvizforsecularmonarchy

amirparvizforsecularmonarchy I Love Waterfalls and Find One of the most humorous things in the world; is the notion that Americans are a greater force for good & more civilized than Nazi's, Mullahs and Communists.

Politicians, Journalists, Lawyers you refer to are really the very fruit and by product of democratic systems of government, None of them abide by the law and all 3 indefinitely misuse the will of the people for personal gain and wealth. The way the world is being run is a crime in itself and it is no surprise seeing those who produce the least honest value, receiving the most as the entire system is based on manufacturing dishonest gains, criminal and modeled after the mafia and machiavellian teachings. Politicians, Lawyers and Journalists are esteemed and respected in other systems of government, like monarchies and single party systems, which are not focused on manufacturing lies or the criminal, mafia style pursuit of power like democratic systems have exposed themselves to be for example.

varjavand

varjavand Reza Varjavand (Ph.D., University of Oklahoma) is associate professor of economics and finance at the Graham School of management, Saint Xavier University, of Chicago.

This comment is just for the purpose of clarification and easing off the displeasure this article may cause for some of our lawyer friends.

The intended purpose of this article is to highlight the problems created for a society by rent seeking especially from frivolous class action lawsuits. This paper is not a categorical attempt to associate all the hard-working honest lawyers with rent seeking or to vilify the respected legal profession. It is aimed at those who misuse the system and/or take advantageous of the unfortunate situations some people or some business firms may be experiencing. No one should undermine the invaluable services provided by many lawyers. Such services do, in fact, contribute to wealth creation and their positive impact on the economy cannot be underestimated, social services such as: protecting property rights, promoting social order, enforcing of contracts, and safekeeping the civil rights of individuals, the building blacks of democracy and free enterprise system.

More exactly, the focus of this article is on the redistributive effects of wealth that result from frivolous lawsuits and negative impacts not only on law-abiding individuals but also business firms. It seems such aspect of legal business intensifies during bad economic time and especially in those countries in which number of lawyers are more than optimum level. According to Professor Stephen Magee, a leading researcher on this topic “approximately 32% of US lawyers put the US about the economic optimum" In other words he seems to suggest that the US economy will be better off if the number of lawyers is cut by 32%. A New York Times report shows that 48 states in the US have surplus of lawyers. It is the excessive number of lawyers that is the main impetus to rent seeking activity with two adverse consequences for the economy, first the wasteful use of the economic resources on costly litigations at enormous monetary and opportunity cost of such resources, and second the unfair/undeserving distribution of wealth from one group to another.

It is obvious that demand for legal services must be successfully stimulated in the face of excessive number of lawyers. Otherwise, price will drop and so should the lawyers’ earnings. Massive advertising is designed to prevent this from happening.

Zendanian

Zendanian An injury to one is an injury to all.

Thanks for this overview of the Legal scene. The only thing missing here are some lawyer jokes! some of that below. This issue of oversupply is of course a bit more complex than it looks.

For instance I don't think we'll have any kind of an oversupply in attorneys practicing Human Rights (especially this field of Universal Jurisdiction, which I'm becoming more and more interested in as I get older) or Labor laws or Environmental justice, anytime soon. There's an over supply in Corporate attorneys, which seems to be caused by mere greed than anything else. Actually a few years back a number of NYU Law School graduates took a class action suite against NYU Law School, simply on the grounds that they couldn't find good paying corporate jobs, and were stuck with their student loans running in hundreds of thousands of dollars. Needless to say the judge dismissed the suite as without merit.

There are many vacant legal positions in the fields of Human Rights (did I mention "Universal Jurisdiction"), Labor Rights, Environmental Justice; these fields are just not as lucrative as Corporate law, and you actually have to care about those issues in order to apply for them.

A long while ago when working in the print shops of some of the high level law firms, even as printers you could see why most of those high flying "partners" in the firm were total a..holes in their daily interactions with people. Here's some of the jokes I used to hear in those firms:

What's the difference between a lawyer and a catfish?
One is an ugly, scum sucking bottom-feeder and the other is a fish....

What is the difference between a lawyer and a vulture?
The lawyer gets frequent flyer miles.

What would happen if you lock a cannibal in a room full of lawyers?
He would starve to death.

What is the difference between a lawyer and a leech?
A leech will let go and drop off when its victim dies.

What do molds, ooze, and lawyers have in common?
They're all slime.

Aliof

Ali Rezaabady I respect life in any form and in its totality. I reject all super natural phenomenon and I believe with all my heart that religion in any form and shape is a deadly shackle that bonds our intellect to abyss of oblivion.

Well said.