Article re: Engineering in America today

College Majors Engineering Majors
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<p>Ashernm: interesting take. In many ways, I almost wish that the ABA would have the same controls - there are just too many law students for the number of legal jobs out there. The market is oversaturated - which is horrible for people who spend six figures on a legal education and can't get a job. You could wipe out about 1/4 of the law schools and not make a dent in supply of lawyers during a bad economy. Too many lawyers has lead to detiorating conditions in the legal world - borderline illegal billing practices, intense hours designed to kill young associates, competition within law firms, etc. Most of law is just about money. Can you imagine that if it applied to people's lives?</p>

<p>IMO, doctors are NOT overpaid. If you can make it through pre-med, into med school, and then through residency, you're smart and have an incredible work ethic. I say this as someone who has been, quite frequently, a patient - I would not be alive right not but for wonderful physicians. More than that, just from a business perspective, physicians are valuable. They must carry huge liability insurance; many of them work long hours; their salaries also cover the salaries of their support staff; and they are doing a highly-skilled trade. 80 hours a week of intense, high-skilled work with an incredibly long training period - actually, physicians are worth every cent. Furthermore, PLEASE check your facts before posting - doctor's salaries have been decreasing in the past few years. I just don't think you can say that the salaries are "artificial," and I don't get how NIMBY fits in.</p>

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<p>Personally, I think a lot of the problem of bad lawyers could simply be removed by reforming the requirements to be admitted to the bar. For example, making the Bar harder to pass, making the exam more relevant (i.e. less emphasis on rote memorization and something more like the California Bar's performance test section where you are given a fictional case and asked to draft some legal documents regarding the case), clamping down on those people who 'cherry-pick' states that have easier Bar exams and then use cross-state agreements to get to practice in other states (i.e. right now, some people who can't pass the Bar in State X will just move to State Y in which it is easier to pass the bar and also has an agreement with state X to recognize each other's lawyers), as well as more constant and more vigorous retesting and recertifying of current lawyers.</p>

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<p>ariesathena, the proper amount of lawyers is arbitrary. Thus, the amount of lawyers is best decided by the free markets, and not by a monolithic trade organization or government. It's the fault of the mediocre lawyers attending bad schools, and no one else. Let people take some individual responsibility. Who are you to tell people not to attend a mediocre law school? Your point is based on the argument that the government/ABA knows better than individuals' as to the proper course for a career. Such a position constitutes an attack on liberty and the capacity of individuals for decisionmaking. The person best equipped to make a decision about himself is himself. </p>

<p>If certain lawyers are bad, then they will not be hired or will at least be fired. Companies always seek to maximize their productivity and have no interest in hiring unscrupulous lawyers. If anything, corruption is a function of a shortage and not a glut of lawyers. If there are too many lawyers, employers would be able to select more top lawyers. Do you honestly think that employers are hiring mediocre lawyers when they could be hiring better ones? </p>

<p>How does one decide the proper amount of compensation? One does not, the market does. Under the current circumstances, the market and its pricing mechanism are distorted. </p>

<p>You illustrate exactly how and why salaries are high. If the barriers are insuperable to most, production will be low relative to demand, and will beget high salaries. Decreasing doctor salaries could be a response to the shortage of doctors and the assumption of physicians' roles by nurses. Prospective physicians should be selected on the basis of factors correlated with performance in medicine. Do you really have to be a genius to be a pediatrician? I read in a doctor's blog that there are shortages of doctors in the less lucrative disciplines because there is a shortage of doctors and if one can get higher compensation in a different area, why not take it?</p>

<p>Is all that medical training necessary? I don't know. Be wary of anyone who claims to know the answer. Is it possible that all those years of training are extraneous and do not contribute to performance? Yes. All those years of training are another way to insure higher wages. Do I know if contributes to performance? Absolutely not. As the answer is not absolute, the decision as to the "proper background" for physicians is best left to employers. The employers have an interest in hiring the most productive and not the smartest physicians. Competition ensures that employers will maxmize their productivity. If employers judge certain backgrounds, say 5 years of some program instead of 3, and ascertain little to no benefit for the increased education, then they will not discriminate (at least not significantly) in favor of the person with 5 years. When some organization sets rules, you are bound to have inefficiencies. How do you know the current setup is the best if there is no room for others?</p>

<p>I'm sorry, the "drawbridge" syndrome is an apt analogy while NIMBY is not really.</p>

<p>sakky, the onus should be on the employers. The employer may simply offer less compensation for those from the 'easy' states. Or, they could devise their own tests. Or anything else found to be effective in winnowing out great candidates. It is the employer's job and not some monolithic organization to determine what makes the best lawyer. Employers will innovate in their means of selecting employees, to gain a competitive advantage.</p>

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<p>Ashernm, you're talking to me in econ-speak, yet I'd like to think that I am rather conversant in econ-speak as well. In fact, this entire discussion is really a discussion of market failures as they pertain to equilibrium engineering salaries, as they do not behave according to the free market principles that you cite.</p>

<p>Simply put, free markets work optimally only under certain specific conditions, and rarely are all those conditions met. Nobel Prizes were won by a number of economists, most notably Ken Arrow and Gerard Debreau, for their discoveries of when exactly do markets reach optimal equilibriums, * and when they do not *, and it was shown that a number of characteristics in tandem have to exist for a market to reach a socially optimal solution. Without ALL of the characteristics present, free markets will reach a suboptimal equilibrium solution, or will not reach a solution at all. </p>

<p>In particular, the 2 large characteristics that are missing in the market for newly minted lawyers are the absence of large social externalities and the absence of asymmetric information. Let's deal with the externalities first. Markets cannot, by themselves, cannot reach optimal equilibriums unless ALL costs and benefits, including social costs and benefits, are factored in. As AA pointed out, a tremendous social externality exists in the form of people who graduate from law schools but who cannot get law jobs, therefore imposing great costs on themselves (in the form of debt they cannot pay off) and to society (for example, the government student loans they took to go to law school that they cannot pay back). Couple that with the fact that many lawyers become ravenously hungry for money in order to pay off their debts and otherwise justify their investments in their legal educations, which serves to encourage, on the margins, the filing of frivolous lawsuits, and again, you have a demonstrated negative externality on society that is not properly captured by market movements. </p>

<p>However, the more interesting warping aspect of the market is the strong presence of asymmetric information. Simply put, law firms don't know who is going to be a good lawyer and who isn't. Every law student is going to claim to be a good lawyer, so the firms are unable to distinguish between those law students who are good enough to make partner and those who are mediocre, so they have no choice but to rely on market-making signals like graduation from a top law school, graduation at the top of your class, legal clerkship status, law review status, etc., as well as simply putting all of their associates through the gauntlet for years on end as a way of weeding off the chaff. These activities carry large negative externalities because it is extremely 'expensive' (in terms of money and effort) to generate these signals. Yet without these expensive signals, the market would never have been able to form at all. </p>

<p>For example, let's say that every single law student looked and acted exactly the same, so the guy who graduated #1 from Harvard Law was indistinguishable from the guy who graduated last from a no-name law school. In that case, many law firms would simply respond by not hiring any newly minted lawyers at all - and would simply resort to poaching proven lawyers from other law firms. That is evidence of a market failure - market transactions were possible because the law firm wanted to do some hiring, but couldn't because information was lacking about the candidates. Evidence of graduating from #1 from Harvard provides an information signal that allows a market to form, at least for that particular guy. But the point is, the market that is formed is highly imperfect, because of that lack of information. Markets work very suboptimally under asymmetric information, as demonstrated by the Nobel Prize winning work of Akerlof, Spence, and Stiglitz. </p>

<p>As Joseph Stiglitz himself said, NGO and government activities are often times responses to failures of free markets, and are attempts to reach a more optimal social equilibrium. There are practically no markets in the world that are allowed to develop willy-nilly, but are guided to at least some extent by the government or by NGO's in the form of regulation and other things, in response to failings of the free market. </p>

<p>I'll put it to you this way, ashernm. If free markets worked perfectly in this situation, then why is there ever any unemployment of newly minted lawyers? According to economic theory, any unemployment should immediately be compensated for by a drop in wages (prices) until equilibrium supply equals equilibrium demand. Hence, there should never be any unemployment of lawyers. So then why are there a significant portion of new lawyers who haven't found a job many months after graduation? That's evidence of a market failure. </p>

<p>I'll put it to you another way. If markets worked perfectly, then why even have a Bar exam at all? After all, if the market for legal services was perfect, then nobody would ever hire a lawyer who couldn't pass the Bar anyway, because everybody would have perfect information and so would know which lawyers are so bad that they wouldn't have been able to pass the Bar, and so those lawyers would never get any clients and so would immediately go out of business. So if that's the case, why even have the Bar? Why have the Bar if the market is working perfectly and those lawyers are going to be weeded out anyway? </p>

<p>The reason you have the Bar at all is because the market is highly imperfect, and in particular, large information asymmetries exist. Let's face it. If the Bar exam didn't exist, some completely incompetent lawyers really would be able to get clients because those clients wouldn't know that they're incompetent, and then those clients would be given incompetent legal representation. Either that, or clients would be so scared of hiring an incompetent lawyer that they would insist on hiring only the most venerable and prestigious law firms to represent them, thereby hurting all the small law firms. The reason why the Bar exam exists in the first place is to destroy some of the information asymmetries and allow the market to reach a more optimal solution.</p>

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<p>You have any data on how many such lawyers are filing frivolous lawsuits because of their backgrounds? I personally think that lawyers are given far too much credit for those lawsuits, and the plaintiffs nowhere near enough. I read in the Daily Journal about a guy who was suing because a swinging rope that he used snapped off the tip of his finger. The rope was not his, nor was the lake adjacent to it, and he had swung well over 20 times previous to the injury.</p>

<p>No markets are at equilibrium and have maximum competition etc.
So, fundamentally the problem you see is the lack of information in determining what makes the best lawyer. Now, what makes you so convinced that the Bar works? And, if it is up to employers to decide who to pick, wouldn't they be more innovative? They have a more direct interest in hiring the best lawyers, have personal experience, and there are literally thousands of them, so that you will have thousands of experiments, instead of one or few systems that provide for little comparison. If the ABA dismantled the bar, employers would be forced to create their own mechanisms, with varying degrees of success. I readily concede though, that employers may be so flush with job applications that they really do not care to make their own hiring mechanisms, explaining the great power of networking relative to the regular method of applying for a job.</p>

<p>The market failure mentioned by result from employers demanding a certain minimum of quality.</p>

<p>I'm sorry if my economics jargon is not up to snuff, as my econ background stems from, WSJ op-eds, The Economist, 2 milton friedman books and another book called "basic economics."</p>

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<p>I seem to recall that it's only a small percentage of lawyers who account for the vast bulk of frivolous lawsuits. However, that tiny percentage then forces companies to retain legions of tort lawyers for their own defense, not to mention extraneous court costs and a wide range of legal infrastructure that has to be devoted to dispose of this frivolity. The point is that, no matter how you look at it, a large negative externality exists that is not properly internalized in labor market dynamics because ambulance-chasers do not have to feel the full brunt of the costs they are imposing on the rest of society. Hence, an unregulated market equilibrium, if it can be reached, must necessarily be suboptimal. Free markets function optimally only when all externalities can be internalized, which is extremely rare.</p>

<p>I agree that firms will always 'innovate' in the sense that they will always adapt with the changes in the market to seek a solution that is optimal for them on a micro level. However, that solution may not be a socially optimal, macro solution. I am not really 'so convinced' the the Bar works as I am completely convinced that the market is riven with information problems and in such markets, hence any information signals, however imperfect, are probably better than nothing at all. By removing the Bar, you would basically be removing a signal. Without signals, I would suspect that the 'innovation' that would occur would simply consist of firms, on the margins, opting not to participate in the market for newly minted lawyers at all - in other words, a market dissolution or a market failure. Instead, they would simply choose to hire only by poaching experienced lawyers from other firms, once those lawyers have proven that they are actually competent. A likely response to that would be those firms who would continue to hire entry-level lawyers would pay them less and make them work more than they do now, for fear that they are training these new lawyers only to have them poached away later, so they might as well maximize their economic gain from them during the early days (this is like an NFL team deliberately underpaying its draft choices knowing full well that those players are going to later jump ship in free agency to some other team anyway, so might as well squeeze all you can from them early on while they're still cheap). Hence, this is really 'information arbitrage' - you took away one information signal (the Bar), so firms respond by weighting the other information signal (how hard you're willing to work and how well you do on the job) more. </p>

<p>I also worry greatly about some of the social justice implications. For example, if you are arrested and too poor to afford a lawyer, you have the right to have your case defended by a public defender who might not be the greatest lawyer in the world, but will at least have passed the Bar. Without the Bar, I'm sure that you really would have some poor people represented by public defenders who really don't have a functioning knowledge of the law and probably couldn't even competently defend themselves, much less defend others. </p>

<p>Speaking of that, I think that is where the information asymmetries are the most egregious. You might expect firms to be able to 'innovate', but how about just regular people who need a lawyer? I think it's asking a bit much for regular individuals to innovate when it comes time to choosing their lawyer. Sure, rich people will just go for the most reputable (and expensive) law firms. But how about people who are not rich? How about a regular person who just wants a very simple basic legal procedure and doesn't want to pay an arm-and-a-leg? Nowadays, you can call up any practicing lawyer and know that, if nothing else, the person has at least passed the Bar. Hence, you get some minimum guarantee of legal knowledge. Without the Bar, you wouldn't even have that. So you really would end up with some regular people hiring lawyers who have no real knowledge of the law. Regular people really suffer from an information problem, because they don't know all the intricacies of what makes a good lawyer and what makes a bad one. </p>

<p>Don't get me wrong, I'm pretty darn conservative and libertarian when it comes to my economics. I strongly tend to favor free markets. However, even I fully recognize that are many cases where free markets do not work optimally.</p>

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<p>Ash: You wrote a lot but said little. Your logic is full of holes and doesn't really address the issue.</p>

<p>The proper number of lawyers: well, hon, there are lots of unemployed ones. You assume that people go to law school and are making an educated decision - knowing the costs and benefits. However, that is a horribly inaccurate analysis. Most people who go to law school do so blindly - trust me, I hang around with them every day. They don't think that they will not be the ones to get a top job. They don't realize that most lawyers aren't rich; that most lawyers work in firms of five or fewer people. Now, if med schools produced too many physicians, you would have the same problem.</p>

<p>IMHO, you're wrong re: bar passage rates - that affects the number of lawyers AFTER three years of expensive and grueling law school. To me, it makes more sense to regulate this on the front end - i.e. not letting more people into school than can get jobs. I agree with Sakky that there is a tremendous societal burden on those who go through the education but don't become lawyers - and only part of that is three years out of the workforce, accumulating debt, but not using that education to any productive end. </p>

<p>I feel like your arguments COULD hold water - if things were different. </p>

<p>Babe, you're nuts if you think that the free market (i.e. consumers) pays doctors. Last time I checked, MDs were paid by HMOs. Hence the decline in salaries over the past few years that has NOTHING TO DO WITH DEMAND FOR THEIR SERVICES. I'm quite aware of the crisis facing the medical profession - where doctors almost have to accept HMOs - otherwise, they are limiting their supply of patients to those who can afford it out-of-pocket (and want to, although having health insurance). Their choices are to take reduced rates or to not have patients at all. For example, doctors used to get $2,000 per appendectomy. HMOs then said that they would cover it for $600. Well, $600 is better than no patient, so you take it, even though this leads to a decline in quality of service. As Sakky said (a lot better than I am), there is no free market in health care. I also don't think that there is a true free market for law: there is a glut of lawyers, not enough work, and the glut isn't going to dry up because soon-to-be lawyers don't understand what they are getting themselves into. Some people will contract for a chance - for example, giving a record company an exclusive right to your material - but that is not what people think they are contracting for when they start law school.</p>

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<p>Actually, AA, I believe that the market for medical services is becoming more 'efficient' (in the sense that its behavior is becoming more aligned with free market principles) and it is the increased free market behavior that is serving to push down doctor salaries. Let's face it. Back in the old days, before HMO's and PPO's, and during the reign of traditional health insurance, the market for medical services was unbelievably warped, because the consumers of medical services (i.e. people who had health insurance) were not the ones directly paying the actual costs of those services, rather they were sticking the true costs to the insurance companies. What that meant is that the incentives of the market were misaligned, and the price mechanism failed - people who had medical insurance had no incentive to shop around for cheap providers and take cheap generic medicines. If you've already paid your insurance premiums and you know you can get any procedure, any test, and any drug (as long as it is covered), why not always insist on the most expensive procedures and the most expensive drugs? Your insurance company is paying, so what do you care? By the same token, the providers don't care either, because they know that the insurance company has to pay, so why not order up a slew of expensive tests? Economics is really the study of incentives, and when incentives are misaligned in this manner (i.e. when the party that is bearing the cost is not the one that is ordering the services) , markets are inevitably inefficient. </p>

<p>Not only did you have misaligned incentives, but you also have the classic information problems of adverse selection and moral hazard. Adverse selection means that those people who are the most sick are the ones who will tend to get health insurance, whereas young healthy people will often times feel they can forgo it. Hence, insurance companies inevitably end up with a customer population that is significantly less healthy (and hence more expensive to serve) than the average person. Then you have people who change their behavior precisely because they have insurance. Inevitably you get some people who feel that, because now they are covered by health insurance, they can now engage in dangerous activities like cliff diving or extreme skiing or riding motorcycles sans helmet, knowing that if they get injured, they don't have to bear the costs of their treatment. </p>

<p>HMO's are really an attempt to correct the problems of the broken market via rationing and price ceilings. It is inevitably that when a market mechanism does not exist to curb demand via price signals, rationing is implemented. However, the REAL way to inject market principles and drive a more efficient market is to, in some way, provide consumers with an incentive to shop around (hence, to present the price signal to the consumer). However, this will probably mean that future doctor salaries (and salaries of all other health-care practioners) will drop by even more, as the more cost-conscious and incentive-conscious consumers become, the less money there will be to pay all providers, including doctors.</p>

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<p>Sakky, your responses in this thread have been nothing short of incredible. I would just like to add that I was/still am a student considering electrical engineering. What's keeping me away is the fact that I have to work harder than anyone during undergrad, my pay will level off fairly quickly, and I just won't get the financial reward I deserve. The reason for the decline in prestige of engineering is that the best move on to other careers while mediocre students are filling the engineering jobs. We need the BEST students in engineering because it is the field that runs our country.</p>